Malawi government’s K20 billion two-year fixed coupon bond issued last week has received a lukewarm response from investors, with a market analyst arguing that the coupon rate at 14 percent could be an issue.
The aim of issuing the Treasury note, according to government, was to restructure its ballooning domestic debt to enable Capital Hill extend its debt maturity period.
Results of the first day of the auction from Reserve Bank of Malawi (RBM) show that 38 investors applied for the note, but only six were successful, with total amount applied being K5.56 billion. The outstanding amount to be subscribed is at K15.94 billion.
Nico Asset Managers Limited research analyst Tafika Nyirenda on Tuesday said investors have generally not accepted the bond, blaming the rate that was attached to the bond.
She said the pricing of the Treasury note was not attractive for the investors in the first week of the auction, emphasising that investors flock to the market when the price is attractive in anticipation for better yields.
Said Nyirenda: “Investing on stock market is taking a risk because you are not sure how the rate would perform; hence, the return has to be good enough and promising to the investor.
“Unfortunately, government rejected most bids in the first week of this auction because they wanted a rate of 24 percent.
“Anyone who bid above this was rejected. This drove away investors looking at the current economic status and prospects for the coming year.”
But Nyirenda was quick to mention that the K20 billion bond could not been successful because it was listed at a time there were other Treasury notes being auctioned on the market.
Late last year, government issued three bonds worth K109.2 billion on Malawi Stock Exchange (MSE). These included 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.
The three bonds have also received a lukewarm response from investors.
NBM Capital Markets Limited assistant research analyst Paul Mojoo earlier said the K20 billion bond could fail, adding that the risk remains high.
“Prospects are low as investors may be hesitant in locking their funds for long-term. On the other hand, the fact that that there has been no trading on the listed bonds also poses a liquidity risk for investors who may like the option of cashing in before the bond runs its full term,” he said.
Mojoo said investors are sceptical as inflation remains high and still rising, observing that investors should be duly compensated for the risk if the bond issue is to achieve any degree of success.
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