Africa Moyo Business Reporter
THE Diaspora Infrastructure Development Group (DIDG), which recently won the $400 million tender to recapitalise and operate the National Railways of Zimbabwe (NRZ) together with Transnet of South Africa, plans to issue a prescribed asset note to raise funds which would be channelled towards revitalising the entire railways value chain.
DIDG chairman Mr Donovan Chimhandamba told The Herald Business yesterday that they intend to raise $100 million, in two tranches.
The first tranche of $50 million, which is planned for the last quarter of this year, is targeted at local banks, pension and insurance funds.
Imara Capital has been appointed as the transaction advisors. A prescribed asset note is a debt instrument that enables the mandated institutional investors such as insurance, pension funds and banks to lend to infrastructure development firms that have been granted the Prescribed Project status by the Minister of Finance and Economic Development.
The prescribed asset note carries a repayment period that allows for the infrastructure project to be executed, and returns to start being realised before payment is due. It is envisaged that the notes will be issued with tenures of between three and five years once market assessment has been completed by Imara.
“We are looking to boost the industries around railway operations so that the entire value chain starts to function. We are targeting things like the engineering workshops, building new and rehabilitating private branch lines and boosting our infrastructure concrete products to support the construction industry. Only when we get the value chain operating can we get the cost of using NRZ much lower and sustainable,” said Mr Chimhandamba.
The notes, which will carry prescribed asset status, will offer Zimbabwean pension funds and life insurance companies, an opportunity to shore up their portfolios. Pension and insurance funds are required by law to hold up to a minimum of 10 percent of their funds under management in assets with prescribed asset status. Assessments of the performance of the prescribe asset note will be made at the end of each three month reporting period. DIDG has instituted a diversified capital raising strategy which is underpinned by Diaspora and off-shore private equity funding.
This will now be complemented by domestic funding through the issuance of the prescribed asset notes. Mr Chimhandamba said fund raising instruments such as prescribe asset notes are critical in creating acceptable risk or return profile.
He said this is difficult to achieve without some form of public intervention to leverage private capital intervention through the Insurance and Pension Funds Act. Compliance to the minimum investment ratios by Insurance Companies and banks, is assessed on a three month reporting period by the Insurance and Pensions Commission (IPEC), a body tasked to monitor the statutory investments into prescribed assets.
Apart from aiding local financial institutions compliance, the issuance of the prescribed paper by DIDG onto the local market is also expected to give a strong cue to foreign investors to join the investment drive in infrastructure projects when they see local financial sector participants taking up the challenge.
“With DIDG projects having been awarded National Project Status and qualifying for Prescribed and Liquid Asset status, we see a huge opportunity to bring in local banks and pension funds into infrastructure development.
“This process gives us an opportunity to maintain a balance in our funding mix between foreign and local currency.
“Any project in Zimbabwe will have local currency funding requirements so this note will provide a structured mechanism to crowd in local banks and pension funds into quality infrastructure assets that DIDG is developing.
“As DIDG, we are also aware that Zimbabwe needs to minimise where possible the national foreign currency debt exposure. So DIDG is using this note issuance as a means of funding local costs with local resources in the various projects the company is involved in, ensuring that the national foreign debt exposure levels are managed wherever possible, ” said Mr Chimhandamba.
He said DIDG’s entry into the Zimbabwe prescribed asset space brings quality paper and investable infrastructure projects to the doorstep of local financial institutions and augurs well for the country’s infrastructure development going forward. He said the move speaks to their mantra, ‘Diaspora leading the recapitalisation of Zimbabwe’s critical infrastructure’.
Infrastructure projects are capital intensive by nature and thus, require long-term funds through a combination of local funders, foreign direct investment and low cost external lines of credit such as Diaspora bonds. Prescribed assets in infrastructure projects have a long heritage in both Zimbabwe and South Africa.
Recently, countries such as Russia proposed to use portions of their pension reserves for loans to giant infrastructure projects and other investments such as the modernisation of the Trans-Siberian Railway; construction of a 800km rail line between Moscow and Kazan, and the building of a highway ring-road around Moscow. More countries are turning to their backyard for investments in Long Term Infrastructure (LTI) as well as promoting private participation in infrastructure development.
Mr Chimhandamba said DIDG recognises that to redevelop, Zimbabwe requires sustainable finance with long-term repayment profiles to invest in capital projects at fair cost.