eBusiness Weekly
Tawanda Musarurwa
Treasury has granted prescribed asset (PA) status to seven major projects, including two that are United States dollar denominated.
This means institutions, such as insurance companies and pension funds can choose to invest in one or more of these assets to meet their statutory obligations.
These entities are required by law to hold a portion of their investments in prescribed assets.
The move by the authorities to extend prescribed asset status beyond bonds and other Government paper to “alternative projects” has been necessitated by calls from the industry for investment assets that can hedge against inflation and have greater socio-economic impact.
The list includes: First Mutual’s $200 million Micro Finance issue, whose purpose is working capital for on-lending to customers in the key sectors of the economy. The issuance has tenor options of 6, 12 or 24 months, and semi-variable interest rate fluctuating between 30 percent and 60 percent with a 1 percent for every 10 percent increase or decrease in the consumer price index (CPI).
Then there is the Silo Food Industry $350 million issuance targeted towards the manufacturing sector as working capital for processing of basic food commodities. The issue has a tenor of 180 days, and interest of 35 per annum.
Sahwira Agriculture is looking to raise US$20 million for capital expenditure and working capital financing for crop production. The issue has a 270-day tenor and is offering interest of 8 percent per annum.
After getting full subscription to its initial $1 billion issue, Mangwana Opportunities Private Limited is looking to raise an additional $1,5 billion on prior amount to bring the total issue size to $2,5 billion through equity. The raise is aimed at financing productive sectors of the economy namely agriculture, mining and tourism.
Murombedzi Solar Park, which is looking to raise US$8 million to fund the Murombedzi Solar Energy Project, has been granted prescribed asset status. The issuance has a tenor of 10 years, attracting interest of 10 percent per annum payable semi-annually (US dollar indexed).
CICADA is eyeing a $300 million raise to finance the 2021 winter contract farming season. It has a 270-day tenor. Interest is at 30 percent per annum with an incremental rate of +2 percent annual coupon per 6 percent increase in the commodity price from the defined base price to price obtained at the point of sale.
AFC (formerly Agribank)’s AMA Agrobills to the tune of $100 million – whose purpose is to finance the production of horticulture and oil seed products for the 2020/2021 agricultural season – have been granted prescribed asset status. The agro-bills have 360-day tenor, with interest negotiable, on private placement basis within a range of 20 percent to 35 percent per annum (US dollar indexed).
Increased investment in such prescribed assets will mark a significant shift from local pension funds and insurance firms’ long-held strategy of investing in listed equities and property.
Compliance levels to prescribed assets requirements have, however, remained low in the insurance and pensions industry.
With regards to specific sub-sectors, the Insurance and Pensions Commission (IPEC), in its first quarter 2021 reports, highlighted that all funeral assurers were non-compliant with the minimum prescribed asset ratio of 10 percent as stipulated by Statutory Instrument 206 of 2019.
“Prescribed asset investments were insignificant as they accounted for only 0,11 percent of the total asset portfolio. The total amount invested in prescribed assets investments was $1,82 million against a minimum amount of $172,17 million for the sector to comply with the 10 percent minimum prescribed asset threshold,” said the regulator.
Of the eight short-term reinsurers, three were compliant with the minimum prescribed asset ratio of 10 percent as at March 31, 2021. Nonetheless, the statistics showed that short-term insurers’ investments in prescribed assets by short-term reinsurers increased by 13,89 percent from $1,08 billion at the close of 2020 $1,23 billion as at the end of the first quarter.
The pension fund sector’s compliance levels to prescribed assets remains very low despite an increase in prescribed assets holdings over the period, with the latest numbers show that the value of prescribed assets increased in nominal terms by 135,81 percent to $5,40 billion from $2,29 billion in the prior comparable period.
Pension funds’ compliance stood at 3,05 percent against the regulatory minimum of 20 percent for the period under review.
For the life assurance industry, IPEC reported an average prescribed assets compliance ratio for life assurers and life reassurers of 0,31 percent and 9,06 percent respectively against the required minimum prescribed asset ratio of 15 percent
During the first quarter, the regulator said all direct life assurance companies and three out of four life reassurance companies were not compliant with the minimum prescribed asset ratio of 15 percent.
