Funds raised from regional bond inssuances are often invested in credit
lines mainly to private businesses through commercial banks. FILE
By BERNARD BUSUULWA
In Summary
- A regional bond issuance window created by East Africa’s capital markets regulators in 2014 is yet to register a single transaction to date.
- Under the regional bond window, issuers are permitted to float a multi currency, multi country bond instrument co-ordinated by a single regulator across the bloc’s five regional member states as opposed to seeking traditional country-by-country transaction approvals, which are tedious and often take very long to obtain.
- The task of driving growth in this product window lies with the issuers and not the capital markets regulators, said the chief executive of Uganda’s Capital Markets Authority, Keith Kalyegira.
A regional bond issuance window created by East Africa’s
capital markets regulators in 2014 is yet to register a single
transaction to date. The bond was expected to facilitate fundraising
activities by international lenders.
Industry players cite high interest rates and a shortage of lending avenues for commercial banks due to a lack of transactions.
Under the regional bond window, issuers are permitted to float a
multi currency, multi country bond instrument co-ordinated by a single
regulator across the bloc’s five regional member states as opposed to
seeking traditional country-by-country transaction approvals, which are
tedious and often take very long to obtain.
The bond would minimise transaction costs incurred by
international financial institutions, raise the profile of East Africa’s
capital markets among global investors and increase incomes for market
intermediaries such as transaction advisors and stockbrokers.
Funds raised from these transactions are often invested in
credit lines especially to private businesses mainly through commercial
banks for onward long-term lending averaging seven years. Targeted
international financial institutions include the African Development
Bank, the International Finance Corporation and the PTA Bank.
Increased government borrowing in the domestic markets for
infrastructure projects and tax revenue shortfalls experienced in recent
times have also put pressure on interest rates earned on Treasury bills
and bonds — key pricing benchmarks for corporate bonds and commercial
bank loans.
“Governments have been borrowing a lot over the past two years,
crowding out the private sector from the credit market due to costs,”
said Kenneth Kitariko, chief executive at African Alliance Uganda, a
stock brokerage and asset management firm.
Treasury bills and bonds have remained in double digit
territory, with interest rates earned on many government securities
registering notable increases in recent months.
This translates into higher interest rates on corporate bonds
that offer fixed and floating rates and higher lending rates levied by
commercial banks that rely on the 91-day Treasury bill to determine
borrowing rates, experts say.
For example, Uganda’s 91-day Treasury bill posted a yield of
13.3 per cent last week while the five-year and 10-year Treasury bonds
recorded yields of 16.7 per cent and 16.6 per cent respectively. Kenya’s
91-day Treasury bill stood at 8.7 per cent last week while Tanzania’s
10-year bond registered a yield of 18.6 per cent, according to financial
market reports.
Slow economic growth also triggered revenue deficits in all member states in the 2015/16 financial year.
The task of driving growth in this product window lies with the
issuers and not the capital markets regulators, said the chief executive
of Uganda’s Capital Markets Authority, Keith Kalyegira.
He added: “Investors should also stop viewing regional capital
markets more as avenues for exiting investments than for raising new
capital.”
Investors also shy away from borrowing during election cycles
for fear of losing their assets in the event of chaos. While Tanzania
held a generally peaceful general election in 2015, there were
allegations of irregularities in Uganda’s poll in February last year.
Kenya and Rwanda are scheduled to hold elections this year.
“The high default rates across the region since last year have
also discouraged international lenders from raising funds in the local
capital markets,” said Dr Alexis Rwabizambuga, chief country economist
at the AfDB Uganda country office.
The Financial Stability Report for the period ending June
2016 shows that non-performing loan ratios for Uganda, Kenya, Tanzania,
Rwanda and Burundi stood at 8.3 per cent, 8.5 per cent, 8.7 per cent,
7.0 per cent and 18.5 per cent respectively.
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