Zimbabwe: Tobacco Bills Fail to Excite Market

Source from:  All Africa 12/23/2010

THE uptake of tobacco bills issued by two major banks at the end of October to raise US$10 million to finance tobacco production has been low, The Financial Gazette can report. Project promoters were said to be patiently hoping to mobilise the targeted amount but there was no timeframe because of the liquidity constraints on the market. The tobacco bills were jointly issued by agricultural development bank, Agribank Limited and FBC Bank Limited, with Neverseez Capital acting as a joint advisor together with FBC Bank. A dealer at one of the banks said: "Yes, the tender is still open. We're still trying to raise the money." A banking industry source said uptake had been so far shy of the 50 percent mark. "It's a tight market," said the source. "There would normally be a stampede for prescribed assets but it's currently not the case." Although US$10 million is an insignificant figure, analysts had indicated to The Financial Gazette when the bills were issued that capital had become timid after heightening political rhetoric over elections next year. This, they predicted, was likely to affect the appetite for financial products. Zimbabwe's political foes had buried the hatchet to form the inclusive government last year after a decade of political bickering, partnered by a disintegrating agricultural sector following chaotic land reforms. But sharp differences between President Robert Mugabe and Prime Minister Morgan Tsvangirai have re-emerged, triggering an irretrievable fall-out, with the two co-habiting foes now baying for elections to allow the formation of a non-inclusive government. The prospect of a relapse into violence and economic disintegration has particularly rattled investors, with analysts warning the tobacco bills could be significantly undersubscribed as a result. There are also fears that an election next year could disrupt the recovering tobacco farming sector, which this year chalked up significant foreign currency receipts, boosting money supply in the economy. Agribank and FBC Bank Limited unveiled the tobacco bills to mobilise financial support for tobacco farmers for the growing, curing and transportation of tobacco to the auction floors. The two institutions had invited investors, including but not limited to pension and provident funds, insurance companies, life mutual, commercial banks and other interested institutions as well as individuals in Zimbabwe,to subscribe for the tobacco bills. FBC Bank will be the settlement agent for the bills, which the issuers said had been approved by their respective boards and granted prescribed asset status by government. A notice jointly issued by the two banks had said: "The bills will be issued in terms of resolutions passed by the boards of directors of Agricultural Bank of Zimbabwe Limited (Agribank) and FBC Bank Limited (and) concessions given by the Ministry of Finance of the Government of Zimbabwe." The bills, to be issued in multiples US$10 000, US$50 000, and US$250 000, are of a 360 day tenor. Interest will be negotiable on a private placement basis. There is an undertaking by Agribank and FBC Bank to fund repayments from tobacco sales through the stop order system. A sinking fund has been established, which will be managed by the issuers where the two banks would make deposits from tobacco sales proceeds. Enditem