• Karo issues a three-year bond worth $50 million at a semi-annual interest rate of 9,5%
  • Karo grants local investors an opportunity to invest in successful local projects with most big mining firms listed in foreign exchanges
  • During the first few weeks after being listed on the secondary market, fixed-income instruments are frequently on-the-run, or very liquid, before becoming illiquid until maturity

Harare - Karo Mining Holdings(KMH), on Friday listed its bond on the waterfall bourse, Victoria Falls Exchange (VFEX) to become the first debt instrument and 7th issuer on the two-year-old bourse.

Karo’s listing came a week after, Simbisa Brands Limited, became the 6th counter, adding to Nedbank Group Depository Receipts, giant seed producer and distributor, SeedCo International Limited, mining giants - Caledonia Mining, Padenga and Bindura Nickel Corporation.

Axia Corporation, Getbucks MicroFinance and Innscor Africa Limited are still in the queue to migrate to the waterfall exchange as more companies are considering delisting because they no longer see any value in the local currency market and would rather go to the VFEX, which trades in US dollars. Two of the companies' biggest concerns are a lack of liquidity on the ZSE and valuation issues. Transferring to the VFEX will help them realize their true worth.

Karo is planning to raise financing on the VFEX through the first publicly traded USD-denominated structured debt instrument, and the listing is critical because Zimbabwe's bond market has been dormant for some time.

Even though its parent company trades on both the Johannesburg and London stock exchanges, Karo Mining has never been registered on a bourse. A three-year bond worth $50 million was issued by the firm at a semi-annual interest rate of 9,5%, which is higher than the expected dividend yield of all blue-chip stocks listed on the ZSE.

The government founded VFEX in 2020 to lure foreign investment. It is the only exchange in Africa that deals in US dollars.

The majority of the funds were raised locally and the debt instrument has a 63% subscription rate, making the bond listing the first instrument to do so since 2015.

Globally, the bond market is an important source of funding for businesses, financial institutions, and governments.

The listing of Karo is anticipated to revitalize the fixed-income market and aid in the growth and expansion of the capital markets.

While the bond's listing provides additional finance for the Karo Project, it also addresses some of the concerns voiced by local institutional investors, such as the opportunity to invest in successful Zimbabwean projects and the necessity for listed debt instruments.

In Zimbabwe, there are only a few profitable mining enterprises that local investors can participate in as shareholders, such as Padenga and Caledonia, but there are still several others that institutional investors are unable to access.

One of Zimbabwe's biggest producers of platinum is Zimplats, however, it is listed on the Australian Stock Exchange. Implats Group, the parent company of Zimplats, is traded on the Johannesburg Stock Exchange.

The Australia Stock Exchange lists Invictus Energy, whose most recent report on the oil and gas potential in Northern Zimbabwe has been trending.

Unki Mine is a division of JSE-listed Anglo American Platinum, and Sibanye-Stillwater and Implats Group jointly own Mimosa Mine.

Local insurers and pension funds are hindered by the lack of a thriving bond market in the nation since they normally rely on fixed-income instruments to match risk in held assets with risk in legal and quasi-legal obligations, a process known as portfolio immunisation.

However, there are several drawbacks to bonds as an asset class that prospective investors should be aware of.

When compared to equity, bonds are often less liquid since fixed-income investors typically keep them until maturity to protect their portfolios.

As a result, during the first few weeks after being listed on the secondary market, fixed-income instruments are frequently on-the-run, or very liquid, before becoming illiquid until maturity.

Several of these products are more susceptible to interest rate changes than equity and other instruments, and fixed-income instruments do not offer significant prospects for capital gains.

 Since the Karo bond will be a vanilla option-free bond, any changes in US interest rates are expected to have an impact on its fair value.

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