via IDBZ to restructure balance sheet | The Herald 4 July 2014 by Clara Mawere and Martin Kadzere
THE Infrastructure Development Bank of Zimbabwe plans to create a Special Purpose Vehicle to assume the bank’s foreign debt as it seeks to restructure its balance sheet.
IDBZ, a Government-controlled institution, also intends to sell close to $100 million in debt this year to help fund some critical power generation and fibre optic projects.
The bank is in arrears to the tune of about $40 million in lines of credit obtained abroad. Last year, an interest of $1,25 million was charged on the non-performing foreign debt.
“One of the key strategies in the group’s recapitalisation involves addressing the legacy foreign debt,” IDBZ chairman Mr Willard Manungo said in the bank’s 2013 annual report.
“Government is considering a proposal which, if implemented, would have the effect of cleaning the balance sheet of the bank through a transfer of foreign debt to a standalone Special Purpose Vehicle.
“The net result would be a well capitalised institution capable of mobilising funding through lines of credit in regional and international capital markets on the strength of its balance sheet,” Mr Manungo added.
A Bill of Parliament will be needed to implement the restructuring, chief executive Mr Charles Chikaura said.
IDBZ has been facing challenges in mobilising lines of credit as it remains under the sanctions list of the Office of Foreign Assets Control, an agency of the US Department of Treasury.
The group aims to be a $1 billion institution by 2018 and the plan rides on Zim-Asset. Mr Manungo said the bank remained open to new institutional investors who share its vision on infrastructure finance and development to take up equity in the bank.
A well capitalised bank with a broad institutional shareholder base will enhance the bank’s capacity to raise debt capital to fund relatively large and bankable projects.
Proceeds from the Infrastructure Development Bonds will help cover the cost for Kariba South Power Station expansion and Harare Power Station re-powering project.
Zimbabwe Power Company contracted Sino Hydro to build two additional power generation units at Kariba of 150MW and the process to engage the engineering, procurement and construction tender for HPS will be finalised before end of the year.
“The bank secured a mandate to mobilise $20 million as part of the total funding required for rehabilitation of Harare Power Station,” the bank said in its 2013 annual report.
“The tender process . . . will be finalised in 2014 following which the bank expects to immediately engage in fund-raising through local infrastructure bonds issues.”
On Kariba, IDBZ was mandated to raise $40 million of the $540 million required for the project. IDBZ issued a maiden infrastructure bond in 2012 and successfully raised $30 million.
The bank also secured a mandate from TelOne, a telecommunications company to raise $32 million to fund the utility’s internet protocol multimedia sub system and fibre optic project.
It is also involved in resuscitation of Norton Medical Centre project which will cost $4,5 million. In the full year to 2013, IDBZ recorded a 38 percent decline in profit to $2,2 million on liquidity constraints experienced in Q4 which resulted in a significant decline in the trading book.
Net interest income dropped 22 percent to $5,4 million due to increase in the cost of funding and interest charge of $1,25 million on the non-performing legacy foreign debt.
Fees and commission income increased by 123 percent to $5 million from $2 million in the prior year, a reflection of increased contribution of non-funded income as the bank shifted focus towards the core mandate of infrastructure financing.
A loan impairment charge for the year at $1,3 million was a significant reduction from the prior year at $2,1 million.
The decline was attributed to strengthened credit risk management processes. Operating expenses increased by 3 percent to $10 million.
Total assets declined from $111 million to $105 million in the year under review. Capital position improved from a negative equity of $11,3 in 2012 to a negative equity position of $6,9 million as a result of an additional equity injection of $3,3 million.