Offshore capital raising beneficial, say analysts

Malawi has the potential to raise cheaper capital by issuing offshore bond or Eurobond though careful consideration on exchange rate and non-performance risks, investment analysts have said.

The analysts said this in separate interviews on Tuesday in the context of Rwanda’s first issue of a bond on the London Stock Exchange (LSE), which has raised $620 million (about K509 billion).

Eurobonds are usually long-term instruments issued offshore by governments or corporates denominated in a currency other than that of the issuer’s country.

In an interview on Tuesday, Cedar Capital Limited chief executive officer Armstrong Kamphoni said that holding the currency risk constant, the funds tend to be cheaper than local issuances due to volatility in the local economies.

He said the listing of a sovereign or government bond in an international market such as LSE is also a vote of confidence on the issuing country.

“This, therefore, raises the country’s profile as an investment destination and reduces the perceived risk by investors,” said Kamphoni.

But he cautioned that there is also the risk of non-performance or not meeting repayments, citing Zambian foreign bond where the government was unable to meet repayment obligations.

On his part, Alliance Capital Limited research manager Bond Mtembezeka said it is relatively cheaper to raise debt outside than domestically, but observed that a country needs good credit rating to qualify.

“This gives access to a wider pool of investors, but since ideally the repayment is done with funds generated domestically then it presents a huge exchange rate risk, especially when you have perpetual current account issues like we do in Malawi,” he said.

On his part, Bridgepath Capital Limited chief executive officer Emmanuel Chokani observed that while issuing an offshore bond could increase a pool of resources beyond domestic funding, Malawi needs a good credit rating for such deals.

“Your house needs to be in order to have a rating that meets international investors so that speaks to having proper debt financial management metrics in a country,” he said.

Treasury spokesperson Williams Banda said this direction requires a good credit rating to venture into such deals.

Lately, Treasury has shifted focus to issuing long-term instruments, a situation analysts say is ideal.