Zambia’s debut green bond attracts $54m in first raise

The first ever green bond has been listed on the Lusaka Securities Exchange in a major $200m issuance, raising hopes that this could prompt further development of capital markets in Zambia.

The Kitwe-based Copperbelt Energy Corporation issued the bond through its subsidiary CEC Renewables and intends to use the capital raised for solar, wind, and other renewable energy projects across Zambia. The initial $54m tranche has been fully subscribed since its listing last week, with Zambia’s inaugural green bond attracting interest from banks, financial institutions, and impact investors.

Joseph Gombwa, manager of debt and trade solutions at FNB Zambia’s corporate and investment banking division, tells African Business that “the issuance of the first green bond will certainly encourage the development of capital markets, in the sense that there is strong appetite from market players, such as banks, to finance green projects given the wider drive to support more environmentally sustainable projects.”

“This appetite is evidenced by the fact that the bond was oversubscribed by 178%,” Gombwa adds. “Going forward, we should see more listings and issuances given the interest from funders to participate in similar projects.”

M’khuzo Mwachande, an investment banker in Cape Town, agrees that the high levels of interest in the green bond shows that “Zambia is finally on the radar for most investors, especially those that are incorporating ESG and sustainability into their investment decisions.”

“By and large, the issuance of a green bond is a positive development for Zambian capital markets,” Mwachande says.

However, he is sceptical about the extent to which Zambia can develop its capital markets given that several major obstacles to growth still remain.

“Wider reform is needed if Zambia is to see all the major issuances and listings that we all want to see in Lusaka.”

Pensions reform ‘needed to boost exchange’

Perhaps most importantly, Mwachande points out that the nature of Zambia’s pension system limits the amount of capital that can flow into the Lusaka Securities Exchange.

“In Zambia, citizens can access tax-free drawdowns on their pensions after contributing for two years – citizens receive gratuities every couple of years. This is as opposed to other pension systems which encourage citizens to participate in long-term retirement plans that last for decades,” he explains.

This short-term approach, which also contributes to macroeconomic issues such as high interest rates, means that institutional investors such as pension funds are less likely to invest in securities and capital markets. This “undercapitalisation” in turn makes markets less liquid and, as a result, more prone to inaccurate pricing, further deterring investors.

He believes that a new approach to the country’s pensions is crucial if it is to unlock the full potential of its capital markets.

“Reforming the pension system by eliminating the gratuity schemes and implementing comprehensive saving plans could lead to an increased number of fund managers who can act as market makers,” Mwachande says.

“This would facilitate accurate price discovery for assets listed on the Lusaka Securities Exchange, contributing to a more dynamic and efficient market.”

The government has indicated that it is prepared to look closely at capital markets regulation, in the hope of attracting the funds required to develop Zambia’s renewables sector and other strategic industries.

Mwachande notes that suggestions have included reducing or waiving corporate actions fees to increase exchange activity, making the Securities Act and Lusaka Securities Exchange listing rules more business-friendly, and integrating Zambia’s market with others in the Southern African Development Community (SADC) to boost collective liquidity. The government has also talked about incentivising major mining and telecommunications firms to list part of their shareholdings in the hope of encouraging other businesses to follow, he adds.