By: Nghiinomenwa-vali Erastus
In interesting events at the Bank of Namibia government bonds auction on Wednesday, the treasury decided to borrow more money than they advertised last week.
In the advert last week, the central bank invited investors to an auction of its 14 internally registered bonds, seeking to borrow N$215 million.
However, Wednesday’s auction results, as the central bank released, show that the treasurer borrowed N$200,5 million more.
This brought the total amount borrowed through the 14 bonds to almost half a billion (N$415,5 million) from the initial offering of N$215 million.
If one factor out N$200,5 million, which was not initially targeted, the auction would have been over-subscribed with N$374,7 million.
This means there was more money looking for an investment place than it was offered- this also highlights the amount of capital available in the economy seeking a place to grow.
However, the bank decided no money should return and borrowed more than offered.
This reduced the auction over-subscription to just N$174,2 million.
Almost every successful bidder who availed capital at the auction received a full allocation- this indicates that the money was accepted for all those who bid to lend to government at a favourable rate.
One of the highlights is the GC48, which was initially just offered/government only wanted N$15 million through it this time, however, comes the auction, the results show that the central bank borrowed N$49,3 million.
THE CENTRAL BANK EXPLAINS
The Bank of Namibia explained to The Villager that they have the right to over-allot (borrow more than they offered in a specific bond) during a specific auction.
At the same time, they also reject some of the bids that are asking for high interest.
The bank reserves the right to allot more or less than the offer amount by either over-allocating or rejecting any tender if the bids are favourable or unfavourable against market rates.
Given this provision, “the bank has exercised this right at the auction that was held today by cutting off bids that were out of price and over allotted on bonds where the price was more favourable.
There were three bonds (inflation-linked) that had their bid cut off- the two linkers offered to borrow N$20 million during the auction, however, the central bank only borrowed N$14 million.
This is despite the two linkers being oversubscribed by N$4 million.
The third bond is the GC40, of which government wanted N$20 million. However, it only borrowed N$14,5 million, despite oversubscription.
Latest updates have also indicated that the ministry of finance will need an extra N$900 million to fulfil its budgetary promises.
This money will be borrowed from local investors through short-term borrowing instruments/treasury bills.
The Treasury bills target has increased by N$900 million to cater for the extra-budgetary cash requirement at the end of the fiscal year.
Additionally, more will be required from local markets as N$1.5 billion, which was initially envisaged to be raised from external sources, has been re-allocated to fixed-rate bonds.
WHY IS MONEY FLOODING GOVT DEBTS?
About 93 per cent of the local bond market is government issuance, where the SOEs, private companies, and others?
The Government Institution Pension Fund head of treasury, Immanuel Kadhila, offered some answers.
He explained that the Namibian Stock Exchange (NSX) is quite shallow despite being one of the oldest on the continent, with the number of primary listed companies standing at just 11, offering a few options to those who have the capital to deploy in line with domestic capital requirements.
Kadhila explained that the number of primary listed companies on NSX has remained unchanged for years and provides little depth and limited choices for investors.
Highlight the lack of depth of the local bourse.
“The depth of the capital market not only helps companies with cheaper sources of funding but also attracts foreign investors searching for yields,” he wrote.
About 24 per cent of the local NSX market value is owned by the Government Institutions Pension Fund (GIPF).
About 93 per cent of the sovereign bonds are dominated by the government, while non-sovereign bond programmes of NSX make up less than 7 per cent, the majority of which are commercial bank bonds.
Only 0.6 per cent of the bonds on NSX are issued by government-affiliated entities (which is just DBN).
This is despite the government issuing between N$9 to N$10 billion of guarantees to SOEs to borrow- these guarantees are used to borrow from the African Development Bank, Germany, and China.
The lack of alternative assets in the market also exposes investors to the same risks and provides little room to diversify, especially in a country where there is a limitation on how much local funds to invest outside.
The GIPF owns nearly 40 per cent of the outstanding bonds on the NSX.
According to Kadhila, the government continues to crowd out the private sector mostly because corporates prefer to use bank debt.
Namfisa’s regulation requires that a minimum of 45 per cent should be invested in the local economy.
“Due to a lack of financial instruments, most of these funds sit in the commercial banks’ money market products which in turn find their way out of the country, mostly to SA, or get placed into Treasury Bills by the commercial banks,” he stated.
Kadhila indicated that for as long the local corporates continue to rely on commercial banks as their only source of funds, which in most cases is short-term in nature, Namibia’s infrastructure gap will continue to widen.
At the same time, local capital will continue to flow to countries with deep financial markets.
The government also has a part to play in the low issuance of quasi/corporate bonds as it consistently bails out SOEs that are categorised as commercial entities- only Namwater and the Development Bank have utilised the NSX for extra capital.
“The dependency of our SOEs on the government will keep them away from the capital market, leading to a forever shallow market,” Kadhila wrote.