By: Nghiinomenwa Erastus
The central bank, on behalf of the government, seeks investors to switch their N$1 billion or more investment in the inflation-linked bond, G122 today (27 October).
The switching of investment is to existing long-term borrowing instruments rather than investors waiting on maturity.
The G122 is maturing next year in October 2022, and the government will be required to repay/redeem the outstanding amount on the GI22.
Bonds are not payable/ redeemable before the maturity date.
By the end of September this year, the G122 has an outstanding amount of N$2,3 billion- making it one of the most utilized/borrowed through the inflation-linked note.
The Minister of Finance last week has invited tenders to switch up to N$1,0 billion or more of the outstanding of the Namibia Internal Registered Stock, 3,55%, GI22 into (GI27, GI29, GI33, and GI36).
Since there is only one year to go to the maturity of the GI22, as it is now, it has become a treasury bill- investors are being given a chance to shift/move their investment to other long-term bonds.
Investors who do not want to liquidate their investment position on the bond by October next year are requested to tender and indicate which bond they want to move in at the rate given.
A 3,95% fixed yield will be applicable for the GI22 Switch Auction.
While for those who do not want to switch, wait for 22 October as the government returns the money (outstanding) they borrowed through the G122.
GI22 investors are required to bid the nominal amounts of the GI22 they wish to sell for destination stocks and the price at which they want to buy the destination stock.
Allocation will be made in ascending order of switch ratios (GI22 dirty prices divided by GI27, GI29, GI33, and GI36 dirty prices). At the same time, bids will be allotted based on the lowest switch ratio (source stock dirty price/destination stock dirty price).
Ministry of finance has six inflation-linked bonds and has borrowed N$7 1 billion through the linkers by the end of September this year.
However, last week (22 October), the central bank also utilized four of its listed inflation-linked bonds on its latest auction.
The government borrowed half a billion (N$500 million) through the linkers, according to the tender results.
They also plan to borrow more through the four linkers in November and December to meet the borrowing plan of N$2,1 billion through the inflation-linked bonds by March 2022.
Inflation-linked bonds are tied to the costs of consumer goods as measured by an inflation index, such as the consumer price index (CPI)
As a strategy to hedge against inflation risk because they increase in value during inflationary periods, preventing the corrosive aspect of inflation on the purchasing power of the investment.