Malawi govt issues K157bn zero coupon bonds
Treasury has issued zero coupon promissory notes—securities that will not bear interest— valued at about K157 billion to enable contractors and suppliers who are owed by government in arrears to access money.
In a published statement on Friday, government said the promissory notes will be traded by commercial banks and will also qualify as collateral for holders who may wish to borrow against them from the market.
The statement said recipients of the zero coupon notes—bonds bought at a price lower than its face value—and would like to discount them may negotiate their terms with commercial banks.
Treasury spokesperson Nations Msowoya said government has issued zero coupon bonds, which are non interest bearing because this has already been factored in the arrears by suppliers and contractors.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) president, Newton Kambala said although he has not yet seen the statement, the initiative is good.
He, however, asked government to monitor the discounting and the trading of the notes to ensure that commercial banks do not cash in on securities.
“If the trading of these notes is not monitored, commercial banks may cash in on them, which may force some companies out of business,” said Kambala.
But Msowoya yesterday said government will be monitoring the trading of the bonds on the market and that coupon holders will have to register with authorities if they want to change ownership.
Government has said the notes, whose settlement agent is the Reserve Bank of Malawi (RBM), are exempted from all taxes. The bonds will be listed on the Malawi Stock Exchange (MSE) and will be limited to tax compliant government creditors whose payments are in arrears certified by the Auditor General.
Earlier, Finance, Economic Planning and Development Minister Goodall Gondwe told Parliament that government reviewed the policy on settlement of arrears and would issue zero coupon bonds, also known as discount bonds, to supliers owed money by government.
