HakiPensheni

EA security markets propose pension funds trade in bonds

By Nimi Mweta

25th April 2010

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Members of the East African Securities Exchange Association (EASEA) have recommended that pension funds in the region be reformed further so that they can participate in securities activities.

A communiqué issued at the end of the 16th East African securities exchanges meeting in Nairobi that lasted for two days in Naivasha, Kenya, said that freeing the pension sector would facilitate a steady supply of capital especially for infrastructure, as part of the development of regional infrastructure bonds.

Noting that ‘infrastructure is a crucial non-tariff barrier to optimising the benefits of EAC regional integration,’ the chiefs of the various stock exchanges and securities market authorities said that infrastructure bonds can be a more efficient form of financing ‘as they meet the long term nature of infrastructure financing which is often not available from the banking system.’

It would also assist in developing regional infrastructure bonds if a standard EAC policy was available on the legal and institutional framework required for implementation of public-private partnerships in the sector, the communiqué underlined.

The meeting, chaired by Dar es Salaam Stock Exchange (DSE) chief executive officer Gabriel Kitua, noted that EASEA ‘had come a long way and made good achievements thus far with regard to harmonising development within the regional capital markets.’

There was need however for member exchanges to ‘move faster on the various initiatives and make a greater impact on the economies within the region,’ the communiqué affirmed, noting further that the respective governments had embarked on raising capital in the domestic market through infrastructure bonds.

The DSE chief emphasised the need to continue pursuing integration of the markets across the region, ‘as EASEA provided the respective markets with the opportunity to achieve this quickly.’

Various contentious issues were raised at the meeting, for which the various exchanges and security market authorities are still seeking for consensus on application of common rules, for instance in issuing initial public share offers (IPO).

The communiqué said the matter was discussed and agreed by EASEA for pursuit and implementation at a localised level along with other matters, where a streamlining of regional IPOs was agreed.

Members agreed on the domestication of regional IPOs, that they should be offered at the regional level and within the region.

‘Members proposed the development of practical strategies that would address or ease some of the various challenges that IPOs faced. For example, members could seek to leverage on the regional banks as receiving banks to provide a more efficient service during regional IPOs,’ it said.

In order to facilitate elevation of release of IPOs at a regional level, the meeting agreed on the need to carry out a ‘harmonised regional awareness programme’ as it would ensure that ‘the same message was delivered to all the markets and facilitate the equitable distribution of information.’ This programme is expected to roll out in the first quarter of 2011, the communiqué indicated.

There was also a resolution on trading and settlement of cross listed securities, where the CEOs discussed a number of challenges relating to this aspect of the market, noting that ‘the challenge is the ease with which an investor in one of the markets can trade his/her securities in another market, while having his/her securities housed in a depository of the first market.’ ‘It was agreed that the cross-border trading and settlement of cross listed securities be harmonised to facilitate efficiency,’ the communiqué noted.

Initiatives are also underway to develop the reach of the Securities Industry Training Institute, whose board of directors was constituted at the first annual general meeting of the EASEA member states in Kampala, Uganda on the 9th of December last year. The CEOs noted that the curriculum is now being fully implemented across the region, following agreement on the training calendar, with projected trainings every quarter, it said.

‘To date, over 800 people have been trained across the region. The vision is to see the institute take its place as the leading securities industry training institute in the region,’ it affirmed.

There was an overly optimistic note when the CEOs examined the state of East African economies in the wake of the global financial market crisis, noting that ‘the Tanzanian economy had weathered the impact of the global financial crisis.’

It said the economy continued to experience inflationary pressure from food supply shortage in neighboring countries and some parts of the country, ‘as well as from a rebound in the world oil price.’ It noted that overall, headline inflation decreased to 9.6 percent in February 2010 from 10.9 per cent recorded the preceding month.

Other financial market indicators also showed a more relaxed situation, as the three month moving average annual headline inflation rate declined to 10.87 percent in February from 12.3 percent recorded in November 2009. Weighted average yields of Treasury bills decreased to 4.13 percent in March from 6.43 percent and 7.20 percent in February and January 2010 respectively.

At the same time, some worry was registered on the all share index at the DSE, which declined slightly from 1,181.6 points in February to 1,174.89 points in March, owing to the declining stock price of CRDB Bank, as the latter accounts for a significant portion of market capitalisation, it was noted.

There was also a noticeable decline in the use of Treasury bonds by the government in the financial market, as the communiqué noted that the government continued to issue and list more Treasury bonds with three issues worth Sh95.8bn with different maturity dates, issued during the quarter ending March 2010, compared to three issues of Treasury bonds of Sh131.45bn issued during the previous quarter.

The bonds issued in March relate to a 7 year Treasury bond worth Sh30bn, whose demand amounted to Sh149.67bn, a figure the communiqué qualified as a ‘substantial over-subscription.’

Analysts noted that this excessive demand for government bonds reflects a still uncertain climate in the business environment, as underlined in falling ratings of the Tanzanian business context in recent global ratings data.

Despite the high demand, the central bank accepted bids worth Sh30bn, the same amount as auctioned, which was equivalent to Sh27.18bn at cost value, it said. In sum there were 156 issues of Treasury bonds with outstanding amount of Sh1,043.23bn listed on the DSE by March 2010, it said.

On a slightly uncertain note, the communiqué noted that ‘there have been a number of recent market developments,’ citing the Electronic and Postal Communication Bill of 2009 which was passed by the National Assembly in January 2010 and that was currently awaiting presidential signature.

The CEOs did not discuss or place on the communiqué their feelings about the bill, which is facing hurdles from the presidency as it has been criticized by stakeholders, as it appears to compel mobile phone companies to place their stock on the exchange without them wishing to do it on their own.

Critics say the bill has been drafted with a South African model in mind, that companies should surrender a certain portion of shares in order to empower local people. ‘What the MPs forget is that most of these firms aren’t local, and thus the South African maxim of localized redistribution after ending apartheid doesn’t apply,’ one critic said, noting that targeting only mobile phone companies for partial denationalization of shares was a wrong signal to the business community.

Much of the same thing was being demanded in the changes sought to the Mining Act but the government failed to include compulsory surrender of shares at the DSE and instead Barrick Gold Inc. issued a limited share sale from the London market.

In their resolutions, the EASEA member states seemed to regret this IPO as it should have been localised or regionalised, especially if it related explicitly to shares of its Tanzania operations, rather than Barrick operations worldwide.

The CEOs noted however that the Electronic and Postal Communication Bill 2009, despite the controversy surrounding it, was still positive as ‘it provides investors with an exit mechanism and allows them to realize value on their investment.’

There were also expectations that the current parliamentary session would pass proposed changes to the Capital Markets and Securities Act to facilitate the start up of an Enterprise Growth Market (EGM) which would cater for medium sized and start up companies, it added.

SOURCE: GUARDIAN ON SUNDAY