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Government issues k20bn bond

Malawi Government will today issue a K20 billion ($40 million) two-year fixed coupon bond at a coupon rate of 14 percent per year to restructure its ballooning domestic debt which experts have said is unsustainable.

The bond may be listed on the Malawi Stock Exchange (MSE), according to the Reserve Bank of Malawi (RBM).stock-exchange

Ministry of Finance spokesperson Nations Msowoya said the move is aimed at enabling government to extend debt maturity period.

“Policies have been set to move from short-term maturity instruments to long-term maturity instruments; hence, this development will help to realise this.

“It will also play an important role in inflationary issues in a manner that if the maturity is now, government will have no option but to pay at the same time of maturity,” he said.

In December 2014, government listed three bonds worth 109.2 billion on MSE 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 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 if 10 percent.

Since then, the bonds have received lukewarm response from investors, with analyst arguing that pricing could be an issue.

In an earlier interview, market analyst Benson Jere, who is also investment manager at NBM Capital Markets Limited, said investors have not generally accepted the bonds.

He said pricing of the bonds was not attractive because, in any case, they could have been priced in comparison to other treasury notes on the market.

But Malawi Stock Exchange (MSE) operations officer Douglas Nyirenda said in an interview yesterday that issuance bonds of stands to benefit the country’s economy through infrastructural development and also creation of an alternative avenue for borrowing.

“Everyone was striking bonds according to the short-term economic outlook of Malawi. Now, with the long-term bonds, people will look at the yield against the projection with a spectrum of the given year or years.

“On the other hand, using long term loans other than short term loans, will also in a way enable government sustain its commitment to the banks and other avenues,” he said.

Nyirenda said of late, government has been heavily using the treasury bills to borrow money, but added that with this development, government intends to borrow to start paying the matured debts.

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.

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.

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