THE Zimbabwe Stock Exchange (ZSE) will introduce a bond market next year as the bourse seeks to provide a platform for long term funding to both public and private sectors.
A bond market is a financial market where participants issue new debt, known as primary market or buy and sell debt securities.
Speaking at the Institute of Chartered Accountants of Zimbabwe’s International Finance Reporting Standards (IFRS) update, ZSE chief executive officer Alban Chirume said the local bourse was being transformed to become a shareholder company.
“We have just started working on the bond market. We have started the working party. We will introduce it next year,” Chirume said.
Bonds provide long-term capital for companies as they have a longer tenure than Treasury bills.
Bond prices are affected by among others things, inflation, company performance in the case of corporate bonds and what happens in other alternative investments like the stock market.
In the case of government bonds, it depended on the country. As governments and economies change, so investors will price bonds according to the perceived political or financial risk involved.
If a bond’s price falls, its yield rises. Conversely, if the price rises, the yield falls. Rising yields are bad for an economy generally. Falling yields are good for an economy and referred to by politicians and economists as long-term interest rates.
Low long-term interest rates (falling bond yields) mean companies and the government could borrow more cheaply next time they needed to.
Last year, the Infrastructure Development Bank of Zimbabwe (IDBZ) floated a $30 million bond for financing the installation of prepaid meters although it was not highly subscribed due to the liquidity challenges in the economy.
IDBZ also planned to float a $54 million bond to finance parastatals such as TelOne and the Zimbabwe Power Company.
Turning to the listing requirements, Chirume said the first draft of the revised listing requirements will be out in the next two weeks amid concerns that the current set of regulations demanded minimum disclosures from listed companies.
“The first draft of the listing requirements has been done and by mid November will be circulated. Unfortunately in this country, people do not comment as much as they should, but would comment after the document has been produced. The second draft will be done in December,” Chirume said.
“Requirements of IFRS are onerous, but how many investors out there and their advisers that have the technical expertise to interpret the notes to the financials let alone the IFRS Handbook itself? We need to make people understand what we are talking about. A genius is known by the simplistic of the equation.”
Chirume said the revision of the listings requirements will see all professionals involved in corporate action of listed firms being registered. The new rules will see companies adopting quarterly reporting system unlike in the past when companies would report after six months.
“This will be an additional cost to the company, but is of immense benefit to other stakeholders,” he said.
Through the new rules, companies would be required to pay penalties for non-compliance to ZSE rules.
Commenting on the demutualisation process, Chirume said the business review that describes the current structures for ZSE and benchmark the appropriateness to other exchanges has been done.
Turning to the automation of ZSE, Chirume said the project was currently underway. The project has a $2,2 million budget.