The Reserve Bank of Malawi (RBM) has raised K7.4 billion (about $44.3 million) in the two auctions for the K30 billion (about $179.6 million) bond issued in December 2011 to restructure government’s domestic debt and develop a bench mark yield curve.
This represents a 24 percent subscription rate.
But a market analyst on Friday said investors’ response on the bonds has been lukewarm because of the country’s severe dollar shortages and fears of imminent kwacha devaluation.
The K30-billion bond, the largest ever in Malawi, issued on December 23 2011 are on two, three, four and five notes and open to domestic and offshore investors.
A bond is a formal contract to repay borrowed money with interest at fixed intervals.
According to the RBM, the two and three year notes will offer coupons (interest) of 8 percent and 8.5 percent, respectively, while coupon rates on the four and five year notes are 9.5 percent and 10 percent.
The RBM results of the second auction held on January 19 show that in the K10 billion (about $59 880) two-year note, investors applied for a total of K3.84 billion (about $22 994) but were allocated K2.16 billion (about $12 934) with an average yield of 14.23 percent against the interest of 8 percent.
Total amount of money outstanding in this bond is K6.43 billion (about $38.5 million) and 37 investors making applications, the highest of all the bonds, according to the results.
In another K10 billion three-year note, investors wanted K960 million (about $5.75 million) but the RBM allocated them K860 million (about $5.15 million) at an average yield of 15.73 percent.
The coupon rate for this bond is 8.5 percent and 25 investors applied for this with K7.95 billion (about $47.6 million) still available to be auctioned.
The four-year K5 billion (about $29.9 million) bond with 21 applicants had K530 million (about $3.17 million) allotted, the same amount investors applied for, with average yield at 14.93 percent against the coupon rate of 9.5 percent, the results show. The outstanding amount is at K3.84 billion (about $23 million).
In a five-year K5 billion bond, the RBM results show that 21 investors applied for K530 million but the RBM made available K400 million (about $2.24 million) with the highest average yield of all the bonds at 16.50 percent against the coupon rate of 10 percent. About K4.44 billion (about $26.59 million) is still available to be auctioned.
The auctions for the bonds will be held monthly until the bonds are fully subscribed, according to the RBM.
Market analyst at Alliance Capital Limited, Cosmas Chigwe, told Business News that investors are still weighing their options to invest in the bonds particularly in view of the shortages of foreign currency and the expected devaluation of the kwacha as demanded by the International Monetary Fund (IMF) to bring back on track the stalled $79.4 million three-year Extended Credit Facility (ECF).
“Investors are still weary. They are trying to push for higher yields to hedge against inflation and devaluation,†he said.
Earlier, the RBM said the new notes would enable the government to extend the maturity profile of its debt but its overall domestic debt stock was not expected to increase as a result.
RBM’s sale of K5 billion three-year bond in June 2011 was oversubscribed, with the bond yielding 15 percent.
