Malawi Stock Exchange (MSE) seems to be facing difficulties to attract firms to issue corporate bonds that can be listed on the stock market.
Bonds—investment instruments with low entry cost and highly efficient and transparent—are tools designed to appeal not only to institutions, but also to retail investors.
MSE chief executive officer John Kamanga in an interview on Wednesday admitted that corporates, though eligible to issue bonds, have shown little or no interest in the bond market.
He, however, expressed optimism that future government’s move to issue bonds as precedence arguing that the move will eventually not only entice corporates to issue bonds, but also tame interests rates.
“Interest rates are high; hence, corporates are sceptical to go for long- term investment avenues, but with the government that have listed and are yet to list on the market, possibility is high that the yield curve will benchmark corporates issue bond at a relatively low cost,” he said.
Kamanga said without necessarily listing on the stock market, the issuance of bonds on the stock market is prudent for corporates, which are commercial in nature to raise the much needed capital.
“There is lots of infrastructure development being undertaken by several commercial institutions. For instance, we face a lot of blackouts and the Electricity Supply Corporation of Malawi [Escom] needs funds to expand their generation capacity.
“If such entities realise the benefits of raising bonds, they will have an upper hand in raising capital at a relatively cheap cost through long-term financing which can be taken through long-term bond issuance unlike the short-term,” he said.
Other organisations that can seize the opportunity are city and town councils who can also issue municipal bonds to raise funds for development.
NBM Capital Markets assistant analyst Paul Mojoo on Wednesday said not many companies are in shape to attract investors if they issue a bond with the current economic situation.
He said considering the high interest on bank loans, issuance of bond would be ideal, but the current economic status would make it hard for corporates to survive the scrutiny that comes with enticing investors to participate in bond issuance.
Said Mojoo: “MSE is encouraging issuance of bond so that some of them should end up listed on the exchange but as the experience with the bonds listed on the exchange, has so far prove that the bonds may end up being illiquid; hence, the costs of listing not be justifiable.”
Last month government listed three bonds worth K109.2 billion on the 14-counter bourse. n