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Martin Kadzere Senior Business Reporter
CORPORATE bond issuance looks set to increase in the next five years as prohibitive bank interests may force firms seeking funding to opt for capital markets. Bond issuances peaked in the last three years and the majority of corporate bonds raised in 2013 and 2014 were oversubscribed.

Between 2012 and 2014, local firms issued short to medium bonds worth about $350 million, a report by Emergent Research, an investment research firm which focuses on sub-Saharan markets said.

As such, Emergent believes the corporate bond issuance may continue in the medium term.

It said Government’s requirement compelling pension funds to invest a proportion of their assets in prescribed assets would boost corporate bond issuance.

Most of the bonds that were issued in recent years carried prescribed asset status.

In addition, the deposit-loan mismatch in the banking sector is restraining issuance of long-term loans thus fixed income securities have become an alternative for long- term credit.

On the other hand institutional investors interested in long-term assets find long-term bonds desirable.

The research firm also noted that liquidity constraints prevailing in the market compounded by rising defaults is pushing up loan interest rates.

In looking for affordable alternative funding sources, companies could look towards bonds for capital.

A stable and rising dollar provides downside currency risk protection for buyers of Zimbabwean bonds.

“Currency is an important risk for international investors investing in African markets exposed to exchange rate volatility,” said the report.

“From the perspective of currency risk, Zimbabwean bonds are a better choice than those of African peers. And in light of the indigenisation law, we expect foreign investors to purchase bonds as an alternative to equity where they are restricted to take more than 51 percent.”

The ZSE plans to launch a bond market by 2016. A secondary market for bonds will nest liquidity in the credit market. The bond market will also allow investors with a short- term investment duration to participate in bonds with the prospect of exiting before maturity.

But the functioning of a secondary does not need to wait for the ZSE bond market to be established.

“Institutional investors with varying liquidity status can trade bonds when necessary,” said the report. “Research and analysis into bonds will facilitate such secondary trading.

“For current investors, investment in bonds is done with the intent of holding securities until their maturity. We think that these bond investors should be satisfied with the current coupon rates as they are high enough to remain attractive should interest rates rise.”

The majority of bonds raised so far were for productive purposes. CBZ issued $20 million bond in 2012 to finance infrastructure investment and development at a coupon rate of 6,5 percent while Infrastructure Development Bank issued its maiden bond of $30 million to finance procurement of prepaid metres.

Late last year, the bank issued bonds worth $65 million for electricity generation and distribution projects.

In 2013, the Zimbabwe Stock Exchange issued a $1,5 million bond to fund implementation process of the Automated Trading System project.

Other bonds issued were the RBZ’s $20 million bond for meeting import requirements, Fidelity Life Assurance’s $10 million bond to finance low cost housing and Bindura Nickel Corporations’ $30 million bond to restart its smelter.