By MARTIN LUTHER OKETCH, Special Correspondent
In Summary
- East African Development Bank intended to use the cash to finance long-term projects in the region.
The region’s main development financier has put
on hold a planned bond issue targeted at raising the equivalent of $125
million, in the face of sustained high interest rates.
East African Development Bank was widely expected
to issue a corporate bond in the four EAC countries of Kenya, Uganda,
Tanzania and Rwanda this year, but appears to have put the brakes on the
issue due to the persistent high interest rates, despite policy
interventions by the respective countries’ central banks.
“The yields for government securities have
remained high across East Africa. On average, long-term instruments have
maintained yields above 10 per cent since last year. The yields do not
reflect low inflation rates and low central bank rates,” said EADB
director general Vivienne Yeda.
“On account of high yields on money and capital
instruments, the EADB had to maintain a less aggressive stance in its
efforts to issue a regional bond in its four member states,” said Ms
Yeda.
Interest rates for commercial loans have remained
relatively high in all the five EAC member states, averaging above 18
per cent, resulting in high costs of borrowing for business people.
On the side of governments Treasury bill and bonds have averaged 10 per cent, keeping the cost of servicing domestic loans high.
Yields on bonds are normally pegged at a premium
above benchmark interest rates, meaning that overall high rates result
in a higher cost of borrowing for issuers like EADB that use the
instruments as a tool for mobilising long-term capital.
Ms Yeda argued that throughout 2013, East African
states experienced relatively low inflation rates, averaging around 5.6
per cent as compared with 2011 and 2012, when the rates averaged 11.62
per cent. However, other price indicators such as interest rates have
not moved in tandem.
Interest on government securities in Kenya
averaged 11 per cent, while in Uganda, they ranged from 12 to 15 per
cent, despite recent policy actions by central banks to bring the rates
down.
Ms Yeda is the patron of USE’s bonds, equity and
related instruments forum which seeks to develop Uganda’s capital
markets as well as provide long-term financing to the government and the
private sector.
The regional bank provides a broad range of
financial services in its member states with the objective of
strengthening socio-economic development and regional integration.
In June this year, EADB was assigned a first-time
rating of Ba1 by Moody’s on long-term foreign currency debt with a
stable outlook. The Kampala-based development bank and regional
financier, an organ of the EAC, was due to list a third corporate bond
on the USE.
Leo Oswald, an economist at EADB, told The EastAfrican
that being a development bank, it was “technically hard” for the
institution to list corporate bonds on the four stock exchanges in the
current high interest rate environment.
“The $125 million bond was to be divided equally
among the four partner states depending on the needs of a particular
country, but we are temporarily putting a halt on it as we study the
levels of interest rates,” he said.
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