Lukewarm response to govt-listed bonds
When the Malawi Government-listed three bonds—debt instruments issued for a period of more than one year—worth K109.2 billion on MSE in December 2014, there was excitement among the investing public.
The hope was premised on the fact that the bonds will not only add to the diversity of listings on the local bourse, but also generate interest of domestic and international investors.
However, a month since the bonds were listed on the 14-counter Malawi Stock Exchange (MSE) on December 22 2014, there has been a lukewarm response from investors, with analysts arguing that pricing could be an issue.
The three bonds include a three-year K107 billion bond with a coupon rate of 15 percent to mature in 2017, K1.5 billion four-year bond to mature at the end of this year at a 9.5 percent coupon rate and a five-year K822 million bond to mature in 2016 at a coupon rate of 10 percent.
At the time of listing, MSE said in view of the prevailing dynamic and often volatile financial environment, listing of the bonds was strategic in meeting the differentiated demands of investors for a broader range of financial products at more competitive prices and through more efficient and convenient channels.
It was expected that the bonds listing would also raise awareness and generate interest of domestic and international investors in the country’s bond market, contributing towards the development of a deeper and broader bond market in Malawi.
But market analyst Benson Jere, who is also investment manager at NBM Capital Markets Limited, told Business News yesterday that investors have not generally accepted the bonds.
“I think when government was listing the bonds, they had a particular investor in mind. In terms of its trading on MSE, I don’t think it has been a success, they have not brought any excitement,” he explained.
Jere noted that pricing of the listed bonds is not attractive because, in any case, they could have been priced in comparison to other treasury notes on the market.
He said government did not do its due-diligence to determine investor sentiments, the pricing of the bonds in relation to the prevailing interest and inflation rates, market liquidity and that the product was not tailor-made for local investors.
“A large chunk of the bonds were taken up by PTA Bank. It seems that advisers were foreigners and they may not have had the chance to read the mood on the ground. They were not advised properly on whether it was a good time to list,” he said.
In comparison to Treasury bill (T-bills), the yield rates for the bonds are way below inflation rate currently at 24.2 percent. Currently, T-bills rates for all the tenors are hovering around 27 percent, one of the highest in Africa, seconded by Ghana at 25 percent.
MSE operations manager John Kamanga said yesterday thus far, the reaction on the bonds has been on the demand side, which means that those holding them are not willing to sell.
“We are still trying to market them [the bonds]. It’s a matter of sensitising the holders of the bonds on the importance of relinquishing them for cash,” he said.
Kamanga cited two issues that are a bone of contention: the price at which the bond holders are willing to sell and the importance of selling the bonds for cash.
Bonds are investment instruments with a low entry cost and highly efficient, transparent and convenient investment tools designed to appeal not only to institutional, but also to retail investors.
With an affordable standard lot size, bonds also provide an avenue for retail investors to have access to the bond market, offering investors an additional investment alternative and opportunity to diversify.
