Treasury will on Thursday issue a K20 billion three-year Treasury Note which will later be listed on the Malawi Stock Exchange (MSE) to refinance rising domestic debt.
The Treasury Note—a government debt security with a fixed interest rate and a maturity of between one and 10 years—will be issued at a coupon (interest) rate of 14 percent, which is above the inflation rate currently at 8.6 percent.
Malawi’s domestic debt is projected to rise by 473.6 percent as government plans to borrow about K176.1 billion in this financial year against the K30.7 billion in the revised 2017/18 National Budget.
In an interview yesterday, market and investment analyst Armstrong Kamphoni said there is a need for a deliberate policy to encourage trading in these instruments, adding this will help increase liquidity and attract foreign fixed income funds.
He said such funds need to be encouraged so that investors can enter and exit such investments without any hassles.
Said Kamphoni: “Part of such a strategy should involve convergence of issuances on the Malawi Stock Exchange to encourage trading rather than over-the-counter discounting which is currently prevalent.”
He said listed bonds do not trade because they are held to maturity by the investors since there are no market makers who are willing to trade in them in the secondary market.
On his part, market analyst Emmanuel Chokani, who is chief executive officer at Nico Asset Managers, said the development is positive as it provides more instruments for investors to trade in.
He, however, said the notes have previously received a lukewarm response since most of them are held by various pension funds and life insurance companies who hold them to maturity date.
Said Chokani: “One would not sell instruments earning 25 percent when other current instruments earn, for example, 15 percent.”
But MSE operations manager Esnat Chilije is upbeat that the Treasury Note would perform well, encouraging investors to participate in the diversified products on offer.
“This is a good development for the MSE as debt securities market will continue to grow in terms of the number of securities listed. The automated trading system at the MSE provides a conducive platform for trading these securities,” she said.
But in the past, Treasury Notes issued and listed on the MSE have attracted little response from the investing public as the investors were skeptical to invest in long-term instruments.
In an earlier interview, Treasury spokesperson Davis Sado said Treasury Notes give government ample time to plan in terms of debt management.