Govt bonds fail to Entice investors
Two years after being listed on the 13-counter Malawi Stock Exchange (MSE), three government bonds worth K109 billion continue to receive a lukewarm response from the investing public, a situation market analysts have blamed on timing of listing and unstable economic environment.
In December 2014, Malawi government listed three bonds worth K109.2 billion on the local shares market which included a three-year K107 billion bond with a coupon rate of 15 percent to mature in 2017, K1.5 billion four-year bond which matured at the end of 2015, with a 9.5 percent coupon rate and a five-year K822 million bond to mature at the end of 2016 at a coupon rate of 10 percent.
Ideally, the three bonds were aimed at adding diversity of listings on the MSE but also to pave the way for increased introduction of other more innovative financial products.
FDH Stockbrokers Limited manager Nelson Mkwende, in an interview on Monday, said the timing of the three bonds was not proper.
He said, traditionally, investors flock to the market when the price is attractive in anticipation for better yields.
Said Mkwende: “Pricing of bonds and interest rates go together, so, if for instance, one booked a bond when the interest rates were low, it means the pricing was different. In an event where the rate is higher then automatically someone who booked a bond when the interest rates were low will lose because it will be discounted at a loss.”
He said recently, interest rates have been on the rise, which means those that booked these bonds do not see the yield or benefits for discounting now because they know that they will lose out.
“Looking at time value of money and the real time value, one would ask questions like even if I discount now how much will I lose out and should I take up this bond? Taking this into account, people have chosen not to take up the bonds.”
Another Blantyre-based market analyst said the current economic environment, coupled with inflation, which has remained high in the year could also be a contributing factor to the little or no investment in the bonds.
He said: “As the situation stands, investors have become unsure if they should invest their funds in long-term instruments.” he said.
But MSE chief executive officer John Kamanga on Tuesday said the low uptake could be because the bonds were not through capital raising where distribution network of uptakers were not many at the time of listing to the extent that most of them were taken up by institutional investors who have the tendency of buy and hold.
He said most institutional investors have taken advantage of buying those bonds for long-term purposes until maturity because they are within three to five years as compared to retail investors.
“There were not many retail investors who had invested in those bonds as a result the secondary trading is absent because institutional investors are buying for the long-term goal as compared to speculative trading,” he said.
Bonds are investment instruments with low entry cost and highly efficient, transparent and convenient investment tools designed to appeal not only to institutional, but also to retail investors. n
