The government plans to list bonds issued to former farmers on international stock exchanges and any payment made to compensate for farm improvements will not be taxed as it sweetens the offer after failing to meet its obligations.
Zimbabwe was supposed to pay US$1.75bn as compensation to former farm owners by July 29 as per the Global Compensation Deed signed two years ago.
Two years ago, Zimbabwe tabled a US$3.5bn offer to the former farmers as compensation for assets expropriated during the fast track land reform exercise.
Of that amount, US$1.75bn was supposed to be paid in July this year while the balance would be paid in installments of US$437.5m per year for the next four years.
It has failed to pay on the agreed date and now wants to pay using 20-year bonds.
A financial advisor engaged by the government to raise the US$3.5bn Rafael Molina told former farmers at a recent meeting that the listing of the bonds on the international stock exchanges would create certainty that the government is committed and to give them the ability to sell in future.
Molina said the bonds would be listed on the Victoria Falls Stock Exchange (VFEX) and the Johannesburg Stock Exchange (JSE).
“That provides you [former farmers] with guarantee and comfort that the government is going to perform because there will be a lot of commitments that the government is going to make to these exchanges. They have to provide reporting, data and they have to be transparent. “That is the only way they can get listed,” Molina said.
He said listing on the VFEX would be fast and “then overtime” in the next months on the JSE.
The bonds are structured on the basis of affordability to pay, Molina said, adding that interest payment will be fixed per year for the next few years and will be structured in a way that the government will commit to pay earlier than maturity.
The bonds will over time become tradable and have provision to be monetised, meaning that, one can keep the bonds, sell, use them as capital, borrow against them or can be purchased by the international investors.
The bonds can also be used to pay for any liability against the government.
Molina said the government has to make a commitment that the former farm owners will receive payment at the due date which he said is the only way the securities can have value in the secondary market.
“Nobody can buy from you if they believe the government is not going to pay. It is going to take 3, 4 or 5 payments before you begin to see interest in the bonds,” Molina said.
“It is better to make sure that the bonds are payable than to make a commitment it cannot honour.”
The government will issue bonds valued at US$3.5bn. The issue date will be July 29, 2022. The maturity date will be July 29, 2042.
The government will pay interest of US$35m annually. The interest will be paid semi-annually on January 31 and July 31. The first interest payment will be on January 31, 2023.
It is anticipated that after 5 years, the government will begin to pay more, but this is based on its ability to pay. The former farmers will sign the deeds of accession to be paid.
The deed of accession will be deposited into an escrow account with an international agent that will be held on behalf of former farmers until they are fully paid, after which they will be released to the government.
There will be periodic redemption of the securities with the government making a commitment that when it raises or receives other funds, it will prioritise the securities.
The government will come and buy the securities at an auction process.
The government will set up a debt reserve account to fund the payment of coupon and future principal redemption.
There will be a provision for debt to asset swap. This means that if the government decides to sell assets in future, the former farmers can pledge the face value of the bonds to buy assets. They will have the first option to do so.