RBZ increases greenfield projects debt threshold

via RBZ increases greenfield projects debt threshold | The Herald August 13, 2015

FOREIGN investors intending to undertake capital intensive greenfield projects are now allowed to fully finance their projects using debt, the Reserve Bank of Zimbabwe said.

Previously, foreign investors were required to inject debt which is equal to equity in the event that the investor intended to fund the project through a shareholder’s loan.

Reserve Bank governor Dr John Mangudya said in view of the need to support capital intensive projects in line with Zim-Asset, foreign capital injection will no longer be limited to equity.

The Zim-Asset, Zimbabwe’s five-year economic blueprint covering 2014 /15 outlines a number of projects which are well articulated within four clusters of the policy. Some of the Zim-Asset projects include establishment of an avocado processing plant in Rusitu Valley in Chimanimani, dam construction, irrigation projects, road rehabilitation and water and sewer reticulation systems as well as power generation.

“In addition, capital intensive projects supportive of Zim-Asset that shall be permitted to be financed 100 percent using debt are power generation, infrastructure development (buildings, dams, roads, rail), mining and manufacturing of goods,” said Dr Mangudya.

The contracting of debt shall, however, be consistent with external borrowing guidelines governing borrowings by related parties. Private capital is helpful in taking the burden of funding projects away from Government.

Meanwhile, Dr Mangudya said the central bank in partnership with other stakeholders was in the process of establishing a bond market to fund self-liquidating projects. The bond market plays a critical role in the mobilisation of long term financing for Government, quasi Government and the private sector needs.

As a result of serious liquidity constraints facing the productive sectors of the economy due to the short-term nature of bank loans, Dr Mangudya said the bond market could play a significant role in availing long-term for development of the economy.

“Due to high levels of non-performing loans, banks have increasingly reduced their lending to the productive sectors with most of them focusing on individual salary-based consumptive lending.

“It is against this background that the bond market has a major role to play to fill the financing gap. The productive sectors of the economy require long-term funding to replace antiquated and obsolete machinery and employ modern cost-effective production techniques that enhance production and product competitiveness,” said the central bank chief.

Dr Mangudya said the bond market would be an avenue for the intermediation process through the mobilization of long-term savings and channeling them to the needy productive sectors of the economy.

Liquidity is critical in the secondary bond market to allow investors to move in and out of their positions without challenges.