Zimbabwe capital market: Reviving debt securities
REGULATION of debt securities trading in Zimbabwe can be traced back to the late 1940s when Government and Local Authorities dominated the debt market.
Unfortunately the debt market only thrived until the late 1990s. Since then, various entities have been raising capital mainly through the equities market.
Now, the Zimbabwe Stock Exchange (ZSE) recently resuscitated the debt market with the listing of the first debt instrument on April 26, 2017. This is aimed at widening the range of investment products available on the local market.
A debt security is a financial instrument acknowledging, evidencing or creating indebtedness. It is issued by the Government, quasi Government or the private sector entity.
Examples of debt instruments which can be traded on an exchange are bonds (Government, quasi government or corporate), notes mortgages, debentures amongst others.
When you purchase a debt security, you are lending money to the entity issuing such a security.
In return for the loan, the borrower promises to pay a specified rate of interest during the life of the security and to repay the initial amount invested when it comes due. While the rate of interest is paid at specified periods as stated in the contract, the initial amount invested is paid at the expiration of the contract period.
The resuscitation of the debt securities market is a positive development that is expected to be instrumental in mobilising capital, both for the private and public sectors. Foreign investors should also note that in 2014, the Government removed exchange control restrictions on the level of foreign participation on both the primary issuance of bonds and secondary market trading of bonds. Nonresident Zimbabweans can also now fully participate in any security listed on the ZSE without any restrictions.
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