Government’s K20bn bond to refinance debt—RBM

Government plans to issue a K20 billion two-year fixed coupon bond at a rate of 11 percent to help finance the bludgeoning government debt, according to Reserve Bank of Malawi (RBM).

The bond will be listed on the Malawi Stock Exchange (MSE) and, if not fully subscribed, it will remain open until fully subscribed.

In finance, refinancing debt is the process through which a government or company reorganises its debt obligations by replacing or restructuring its existing debt.

The issuance of the K20 billion bond today comes after government issued three bonds three years ago, but received lukewarm response as investors were sceptical to invest in long-term treasury notes.

Investors argued that the risk remained high with the major concern being the pricing of bond between the borrower (Treasury) and investors.

In an interview yesterday, RBM spokesperson Mbane Ngwira said looking at the performance during the recent treasury bills (T-bills) auction, the central bank is optimistic that the bond will be successful as

it has come at the right time.

“It [the bond] also gives an opportunity for the government to cheaply refinance the growing government debt,” he said.

Government domestic debt plus arrears are at more than K500 billion and this fiscal year, government plans to reduce domestic borrowing to K27.5 billion or 0.6 percent of gross domestic product (GDP) from K63.6 billion or 1.5 percent of GDP the previous fiscal year.

Market analyst Cosmas Chigwe yesterday said looking at the market, chances are that the two-year paper will be well accepted by investors.

“The market has been clamouring to invest in longer-dated government papers due to the declining interest rate environment.

“If you look at last year or so, more than 80 percent of T-bills subscriptions have been on the 364-day paper. So, I expect the two-year paper to be well accepted by the market,” he said.

MSE chief executive officer John Kamanga said in the two-year bond, there is a primary issuance which will to attract more investors compared to the previous ones where there was no primary issuance to the public.

“The public is going to subscribe, and once they subscribe, most of these have different financial objectives; others have long-term view, others have medium while others have short-term view.

“So, with the diversity of investors subscribing, that may also mean credibility of instruments on the stock market,” he said.

Kamanga said the MSE is banking on the success of the bond to entice corporate institutions to also issue bonds and list them on the local bourse.