ICAM CONFERENCE THE ROADS FUND K10 BILLION BOND STORY: AN INSIGHT A PRESENTATION BY THE ROADS FUND ADMINISTRATION ICAM CONFERENCE .

Presentation Outline Institutional background Rationale for debt financing How we proceeded Structure of RFA Bond Soft Issues Lessons learnt Future 2

1.0 RFA INSTITUTIONAL BACKGROUND CREATION In 2006 through an Act of Parliament. VISION Sustainable Financing for public road network To economically, efficiently and effectively mobilize, manage and account for funds for construction, maintenance and rehabilitation of public roads in Malawi MISSION

2.0 RATIONALE FOR A BOND

3.0 WHAT OPTIONS DID WE HAVE? Lobby for increase in fuel levy to increase revenue base MEDIUM TO LONG TERM MEDIUM TO LONG TERM Introduce additional source of revenue Leverage on our current revenues to raise capital for rehabilitation projects IMMEDIATE

5.0 HOW WE PROCEEDED K10.0 BILLION Identified the Project, including capital requirements K10.0 BILLION Dualisation of Area 49 – Parliament Roundabout Road Project Construction of a Cloverleaf Interchange at Area 18 Roundabout

5.0 HOW WE PROCEEDED Solicited Request for Proposals in a bid to obtain a most favourable proposal. Six financial Institutions responded- banks and pension funds management companies. Obtained - Letter of Consent from Ministry of Finance. NOT GUARANTEE - Letter committing that there will be no policy changes that negatively affect fuel levy receipts Opened an interest earning (at 91-day T-Bill less 5%) escrow account holding at least one quarter loan serving commitment at all times

6.0 FEATURES OF THE RFA BOND TENURE 5 years with one year grace period. NO GOVERNMENT GUARANTEE Fuel Levy revenue streams. Letter of undertaking not to change fuel levy policy. SECURITY INTEREST RATE FLOATING RATE- Referenced to the 91 day Treasury bill plus premium of 1.75%. Rebased at beginning of every quarter FLOOR RATE Latest available inflation rate plus 2% CEILING RATE NBS lending rate minus 5%- currently

6.0 FEATURES OF THE RFA BOND FEES 1.5 % upfront arrangement fees. One off K10.0m commitment fees. K5.0m bond administration fees annually payable quarterly Escrow Account Funded with one quarter bond servicing commitment Interest earning at 91 day t-bill rate minus 5%- to RFA DRAWDOWNS Draw downs in tranches only when invoice is due for payment. REPAYMENT Quarterly.

7.0 SOFT ISSUES THE BOND PROVIDER WAS LOOKING FOR GOVERNANCE Assurance that the governance structures are working efficiently Compliance with governing laws and regulations - financial institutions do not want to be part of badly procured projects (it is a reputational risk for them). PROCUREMENT All borrowing had to comply with the Public Finance Management Act and own establishment Act. LEGAL MANDATE TO BORROW- Assurance that there will be NO direct Board or shareholder actions that negatively impact on source of income which is the security for repayment SUSTAINABILITY OF SOURCE OF INCOME 10

8.0 LESSONS LEARNT The market has more than enough resources Be transparent in the procurements of both the project and the financier

9.0 LOOKING INTO THE NEAREST FUTURE We see a future in raising capital on the market for infrastructure development We intend to issue another higher value bond

THANK YOU ALL 14