The Sunday Mail
Treasury has given the Infrastructure Development Bank of Zimbabwe the green light to issue a US$100 million housing bond for construction of 20 000 low-cost housing units around the country.
The initiative is buoyed by the bank’s initial success in raising US$30 million — US$6 million from regional development finance institution Norsad, and US$24 million from local investors — through a maiden infrastructure bond launched in October 2012.
Part of that US$30 million was on-lent to the Zimbabwe Electricity Transmission Distribution Company to finance the pre-paid meter project.
IDBZ and international financial institutions like the Malawi Export Development Bank and Denmark’s Investment Fund for Developing Countries have stakes in Norsad Finance Limited, which is headquartered in Botswana.
It is envisaged that the proceeds from the US$100 million bond will be used to reduce the national housing backlog, which is estimated at 1,25 million units.
Local authorities are grappling with providing both land for housing and the off-site infrastructure for already established housing projects.
IDBZ chief executive officer Mr Charles Chikaura told The Sunday Mail Business that the bank would spearhead resource mobilisation strategies to augment available resources, and leverage on its relationships with critical local and international investors to finance housing infrastructure and superstructures.
“The IDBZ recognises that whilst there is a rapid urban growth in Zimbabwe, which is signalled by the spiralling housing stock backlog currently estimated to be over 1,25 million, the capacity of the attendant off-site infrastructure is inadequate to meet current requirements.
“For instance, the majority of the country’s urban water and sewer treatment and storage facilities, bulk supply pipes and pumping capacity are now grossly inadequate.
“There is need for rehabilitation, upgrading and augmentation in order to meet the present and future demand, and this entire programme in infrastructure rehabilitation and upgrading requires huge capital outlays . . .
“Authority to issue housing bonds and bills to the tune of US$100 million has already been given by Treasury, with the proceeds thereof targeted at low-cost housing. There are other stakeholders such as housing co-operatives who will play a key role in augmenting the efforts of the bank in mobilising residential mortgage finance and consideration is being given to a proposal for the bank and other selected financial institutions to manage all finance matters pertaining to housing co-operatives,” he said.
The IDBZ also intends to fund management and disbursement services, project monitoring and mobilisation of additional resources to support the housing co-operatives.
In addition, interventions from the bank will be skewed towards investing in off-site and on-site infrastructure critical for property developers to expedite construction of houses.
According to Mr Chikaura, IDBZ will later take a bias towards superstructures as reserves build up and local authorities’ capacity to handle off-site and on-site infrastructure is restored.
Government, through Zim-Asset, wants to build more than 125 000 housing units by 2018, which translates to more than 25 000 per year.
About 10 000 low-cost houses have been constructed countrywide so far, with 15 000 more units expected by year-end as the authorities move to address accommodation problems mainly affecting low-income earners.
The first phase of construction in Harare’s Budiriro suburb is almost complete, while other projects are underway in Southview Park along the Masvingo-Harare highway and Caledonia in Harare; as well as Mbizo in Kwekwe and Hertfordshire in Gweru.
In order to contribute to the tally, the IDBZ aims to construct about 5 000 units annually from 2015 to 2018.
And to achieve the target the bank requires an estimated 2 000 hectares of land for both owner-occupied and rental accommodation.
In this regard, discussions for land are underway with the Local Government, Public Works and National Housing Ministry.
“Once suitable land has been availed, the bank shall immediately embark on its roll-out plan, with emphasis on land use optimisation through the pursuance of three land development options, that is, vertical densification (flats), servicing of stands only and servicing of stands and constructing core houses,” explained Mr Chikaura.
Currently, detailed modalities on qualification criteria, terms and other conditions are being formulated to match the strategic thrust of ensuring the housing units are affordable and that the housing delivery programme is sustainable and successful.
Additional bonds are expected to be issued in the next five years, but the bank, which is planning to go to the market before the end of the third quarter, has already begun canvassing for the next bond issue.
“The issuance of the bonds would be on-tap, that is in smaller tranches on a staggered and continuous basis over the next five-year period. The quantum raised per issue and per year will be dependent upon the funding needs or uptake on projects being implemented by the bank as well as prevailing market conditions in terms of local investor capacity and appetite for the bonds from regional and international investors,” said Mr Chikaura.
The IDBZ is a statutory body whose primary mandate is to mobilise financial and technical resources for public and private institutions involved in infrastructure investment and development.
It came into being in September 2005 following amendment of the Zimbabwe Development Bank Act.
IDBZ, however, reels under US$40m legacy debt owed to external creditors, blighting the financial institution’s capacity to raise meaningful resources in regional and international markets.
The bank inherited the debt from its predecessor, the Zimbabwe Development Bank.
According to Mr Chikaura, though the principal obligation was US$15 million, it has since ballooned to US$40 million due to interest and late payment penalty charges.
Last year, interest of US$1,25 million was charged on the debt.
“As at 31 December 2013, the legacy debt stood at US$40million, the capital portion of this being US$15 million and the balance in accrued interest over the years and penalty charges for default.
“The debt was inherited from the predecessor organisation, the ZDB, and dates back to the early 1990’s.
“Whilst it paid substantial portions of foreign loans accessed during that period, ZDB however failed to repay its commitments in full thereby remaining with this debt on its books,” said Mr Chikaura.
Foreign currency shortages plaguing the economy in the pre-2009 period affected ZDB’s ability to commit to repayments.
The IDBZ has a broad-based shareholding that includes Government, local institutional investors and foreign development finance institutions.
Government is considering transfering the debt from the bank’s balance to a stand-alone special purpose vehicle as this could enable the IDBZ to raise capital on the strength of its balance sheet.
The bank is also willing to engage a new institutional investor who shares its vision on infrastructure finance and development to snap up a 49 percent stake in the institution.
Government will retain 51 percent equity in tandem with indigenisation and empowerment laws.
IDBZ remains under sanctions enforced by the Office of Foreign Assets Control, an agency of the US Department of Treasury, but nonetheless aims to be a US$1 billion institution by 2018.
