GOVT RAISES E300M IN SEPT BOND AUCTION

MBABANE  –  During the auction held on September 25, government through the Central Bank of Eswatini (CBE) was able to raise at least E300.6 million.

According to the bank, the auction was a resounding success, with bids totalling E300.6 million, despite an offer of E200 million in four benchmark bonds. The CBE, acting as agent for the Government of the Kingdom of Eswatini, auctioned four benchmark bonds of 3, 5, 7 and 10 years. These bonds, which were re-openings, were issued under the E5 billion Bond Programme 2021, listed on the Eswatini Stock Exchange (ESE). The purpose of this E200 million bond issuance was to develop the secondary market, establish a fair market price that would compensate both the borrower and investors for interest rate risks, and facilitate financial intermediation, while also meeting government budgetary requirements.

Bids

The total amount offered was E200 million, with bids received totalling E300.6 million, resulting in a bid-to-cover ratio of 150.3 per cent. The issuer reserved the right to allot an additional amount of up to 100 per cent of the amount offered on each bond (the ‘green shoe’ option). This option was exercised, resulting in the allotment of all bids received, totalling E300.6 million. This was considered a huge success as the bids were allotted at fairly competitive prices. By definition, a government bond is a debt security issued by government to support spending and obligations. Government bonds pay bondholders periodic interest payments called coupon payments. Government bonds issued and backed by national governments are often considered low-risk investments. Government bonds issued by a federal government are also known as sovereign debt.

Government bonds are issued under the provisions of the Treasury Bills and Government Stocks Act 1994 (as amended 2010), which sets a debt ceiling for the Ministry for Finance on how much government can borrow from the domestic market. Government has instructed the Central Bank as a fiscal agent for government, to raise funds in the domestic market by issuing bonds. The Government of Eswatini, like other governments, issues bonds to raise money needed to meet budgetary needs. While government also finances its operations through taxation and levies, sometimes, these amounts are not sufficient. To finance the difference between the expenditure and the revenue (i.e. if it is a deficit), government may borrow by issuing securities.

Denominations

Government also issues bonds in order to develop the domestic capital market, as they provide additional investment avenues, for both institutional and individual investors. Government issues bonds in large denominations with a minimum of E10 000. Bonds are sold at a discount, par or premium to their face value, meaning that you can pay less, equal or more than the par amount, but at maturity you receive the par amount if the bond is held to maturity. If the bond is sold before maturity, the investor can either realise a capital gain or loss depending on the level of yields in the market.

If the market yield is the same as the purchase yield, there is no loss or gain; if the market yield is below the purchase yield, there is a capital gain and the opposite if true for a market yield above the purchase yield.Depending on whether interest is paid annually or semi-annually, an investor receives a fixed interest amount from investing in a bond based on the coupon rate. Auctions are open to all bidders at the initial public offer (IPO) stage; this includes commercial banks, non-bank financial institutions, and stockbrokers, corporate and individual investors. Non-residents are also eligible to participate.

In the secondary market participation to sell or buy is through primary dealers and brokers. According to the latest ESE monthly report, as of August 31, 2024, total government bonds stood at E6.218 billion). Month-on-month, government bonds remained at E6.218 billion at the end of July 2024 and the end of August 2024. The government bonds trading on the ESE remained the same because there were no new bonds that commenced trading and there were no bonds that matured in the period under review. On a yearly basis, there was a 1.03 per cent increase from E6 154 567 000 in August 2023 to E6 218 037 000 at the end of August 2024.

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