A UNITED Kingdom-based international financial consultancy firm, ICG Capital and Finance Corps Limited - in partnership with five top-tier United States banks - has tabled a US$5 billion debt restructuring and refinancing proposal for Zimbabwe, it emerged this week.
Zimbabwe, saddled with an US$18,6 billion debt and cut off from accessing fresh lines of credit, is struggling to repay US$2,3 billion arrears to international financial institutions (IFIs) to unlock new funding.
The debt restructuring deal could help set the broke southern African country on a recovery and growth trajectory.
ICG specialises in raising finance for private and public sector development projects and procuring credit for sovereign governments.
The London-headquartered consultancy firm also deals with financing energy and infrastructure projects across the world.
ICG says it is currently in the process of arranging financing packages for the following projects: loans up to US$1 billion for governments of countries in Eastern Europe, infrastructure project based on crude oil guarantee in Africa, US$200 million gas-fired power plant in West Africa and US$100 million gas-fired power plant in Eastern Europe.
Harare's re-engagement drive with multilateral lenders gained momentum in 2017 when President Emmerson Mnangagwa dramatically ascended to power through a millitary coup that toppled long-time ruler Robert Mugabe. During Mugabe's 37-year rule, Zimbabwe was isolated from IFIs for failing to honour its debt obligations.
However, Mnangagwa's ascendancy, riding on the wave of popular support and promises to embrace bold political and
economic reforms, revived the interest of IFIs, which have been engaging with Harare to find a lasting solution to extinguish its gargantuan debt stock.
Treasury sources this week told the Zimbabwe Independent that in 2017, a team from ICG, led by Michael Minsky, first met with government officials, including former finance minister Patrick Chinamasa and Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, where they tabled the proposed deal to settle Harare's huge debt stock that has haunted the economy for the past two decades. The investment consultancy firm also expressed commitment to mobilise fresh lines of credit for Harare.
Mangudya told the Independent this week that he is not aware of ICG's proposed debt restructuring deal.
"I am not aware of that arrangement, please do let me know of the terms of the deal if you find out," Mangudya said.
However, Treasury sources said discussions around the deal gathered momentum after the first engagement in 2017 shortly after the coup. An ICG delegation also visited the country in January this year to engage authorities on the US$5 billion proposal.
"ICG Capital, leading the consortium and as the lead arranger, first made contact with authorities in Harare in 2017 where they tabled the debt restructuring deal while presenting solid commitments to fund key investment projects," a source in Treasury said.
"Earlier this year in January, ICG Capital also pitched the proposal to Treasury."
Sources privy to Harare's debt settlement strategy told the Independent that ICG, acting as the lead arranger of the tabled proposal, roped in a consortium of top private US banks and initially expressed commitment to mobilise US$5 billion to help Zimbabwe settle its debt obligations. The consultancy firm, Treasury sources say, also pledged to fund key agriculture projects in the country on a joint venture basis.
Since Independence in 1980, Zimbabwe has pivoted its economic growth thrust on agriculture, though Mugabe's chaotic agrarian reforms in 2000 decimated the sector.
"The first offer was first given in 2017 during former finance minister Patrick Chinamasa's time. The team came back early this year and pitched to Treasury and Reserve Bank of Zimbabwe (RBZ). It has remained in constant contact in-between meetings. The Ministry of Finance was meant to give feedback to the President on their recommendation.
"Due diligence was to be conducted on the consortium which tabled the offer. That was done, but officials have been slow to respond. The banks involved are some of the US's top hitters," a source close to the arrangement told the Independent this week.
Under the proposed US$5 billion debt restructuring and refinancing deal, Harare would instantly draw down US$500 million from the facility, upon endorsing the arrangement, sources said.
The sources added that the deal could not be derailed by the United States government, which slapped sanctions on Zimbabwe for gross human rights abuse and the collapse of the rule of law, since ICG Capital and the consortium of banks involved were privately-owned entities not linked to government.
Washington slapped sanctions on Harare in 2001 under the Zimbabwe Democracy Economic Recovery Act (Zidera), virtually cutting off the country from accessing fresh lines of credit from the International Monetary Fund (IMF), World Bank (WB) the London and Paris Club and the African Development Bank (AfDB).
The US wields enormous voting rights in key multilateral lending institutions, which have barred Zimbabwe from borrowing, leaving the country in desperate need of a bailout package to revive its fragile economy.
"No-one wants to give Zimbabwe money. The World Bank, International Monetary Fund, European Investment Bank, London Club, Paris Club will not refinance us anytime soon. Washington will block any moves by those institutions to either give debt finance or refinance Zimbabwe courtesy of Zidera," another source said.
"The proposed offer cannot be blocked by Zidera since it is a private financial entities' driven deal, the same way General Electric wants to partly finance the Batoka hydro-electric venture."
ICG Capital chief executive officer David Gabe had not responded to questions sent to him on the deal at the time of going to print.
Under the proposed arrangement, ICG Capital, together with the US banks, expressed commitment to mobilise resources for compensating white farmers who lost their land when Mugabe embarked on chaotic agrarian reforms in 2000.
Mnangagwa's administration has, however, acknowledged the importance of compensating white farmers who lost their farms during the violent land seizures in 2000. An estimated US$7 billion is required to compensate the white farmers, but Harare's cash-strapped government has pledged to redistribute land to the affected farmers as compensation.
Compensating the white farmers is perceived as key towards Zimbabwe's thrust to re-engage with the West.
"If government acknowledges the farmers' compensation debt, it will be housed under the debt restructuring deal. So compensation for white farmers is dealt with decisively," an insider privy to the arrangement said.
"If Zimbabwe pays the compensation, the country will have demonstrated its seriousness on upholding property rights. That will be a major milestone towards easing Zidera."
Under the proposed deal, 90% of Zimbabwe's sovereign debt would be written off, while the principal US$5 billion amount would attract a 7% interest rate payable over the next 10 to 15 years, upon approval of the deal. If the deal sails through, the source said, ICG and its partners "will also inject foreign direct investment towards financing agriculture value chains on a joint venture basis".
"The US$5 billion financial package will be paid back at the end of tenure (10-15 years). Ninety percent of the sovereign debt will be written off. That will result in favourable sovereign credit re-rating and reduce overall country risk. Upon approval of the deal, US$500 million will immediately be released to Zimbabwe," the source said.
However, sources said Harare authorities are hesitant on giving the deal the greenlight, though Zimbabwe is in desperate need of fresh lines of credit — seen as key towards setting the country's faltering economy on a firm recovery and growth trajectory.
Efforts to get a comment from Finance minister Mthuli Ncube on the terms of the debt restructuring and refinancing deal were fruitless, as he was said to be out of the country. At the time of going to press, he had not responded to questions sent to him.
Finance ministry permanent secretary George Guvamatanga would neither respond to questions sent to him nor answer his mobile phone.
This year, Zimbabwe has managed to settle only US$195 million to local debtors, which constitutes about 2% of the country's US$9,9 billion domestic debt, while the southern African country has not taken significant strides to repay the US$8,1 billion foreign debt.
Zimbabwe is currently implementing the IMF Staff-Monitored Programme (SMP) pivoted around a raft of measures meant to restore macro-economic stability and fiscal discipline among other objectives.
Although the SMP does not have funding as part of the deal, it helps restore stability and confidence needed to open new lines of credit and loans.
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