Govt to free IDBZ of its $39,8m legacy debt

Published: 04 July 2014

GOVERNMENT is considering a proposal to hive-off a $39,8 million legacy debt from the Infrastructure Development Bank of Zimbabwe (IDBZ) balance sheet to give the institution room to mobilise resources for infrastructure development.

The proposal, if implemented, will have the effect of cleaning the balance sheet of the bank through the transfer of foreign debt to a stand-alone special purposes vehicle, according to the bank's board chairman Willard Manungo.

"The net result would be a well-capitalised institution capable of mobilising funds through lines of credit in the regional and international capital markets on the strength of its balance sheet," Manungo said in the chairman's statement contained in the annual report.

The debt has choked the bank to the extent that it paid $1,2 million last year in interest charges and foreign currency exchange losses.

The debt arose from lines of credit availed to IDBZ's predecessor organisation, the Zimbabwe Development Bank (ZDB). The proceeds of the loan were used to fund export-oriented local projects.

"Whilst the bulk of the loans by value were repaid in full, the balance turned into non-performing assets. These lines of credit, which are secured by government guarantees, have negatively affected the financial position of the group," it said.

IDBZ is failing to attract lines of credit because its balance sheet is seen as weak with total liabilities exceeding total assets thereby compromising the bank's going concern position.

The bank said the government had agreed in principle to take over foreign debt and was working on the legal processes necessary to achieve that objective. IDBZ said the removal of the legacy debt will result in the group's total assets exceeding total liabilities.

As at December 31 2013 total liabilities of the group exceeded total assets by $6 357 901. In 2012, the liabilities exceeded total assets by $11 344 865.

"These conditions indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern, without further support from its shareholders," the bank said.

IDBZ was established in 2005 as a successor organisation to the ZDB with an expanded mandate mainly focusing on infrastructure development, a key enabler in the social-economic development of the country.

In the outlook, the bank said it had crafted a new strategic plan to guide its business in the period 2014 to 2018.

IDBZ aims to be a $1 billion financial institution by statement of financial position size by 2018. In the financial year ended December 31 2013, IDBZ recorded a net profit declined by 38% to $2,2 million from the prior year. It attributed the decline in net profit to an acute liquidity challenges experienced in the fourth quarter which resulted in a significant decline in the trading book.

Net interest income dipped 22% to $5,4 million in the period under review attributed to the increase in the cost of funding and interest charge on the non performing legacy foreign debt.

Fee and commission income increased by 123% to $5,3 million from the same period in 2012. The bank said the increase was reflective of the increased contribution of non-funded income as it shifted focus towards core mandate of infrastructure development and financing.

- newsday

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