The Treasury and the Malawi Stock Exchange (MSE) have allayed fears of low participation on the 10-year development bond valued at K20 billion, which the Ministry of Finance expects to issue today.
The bond is part of the K1 trillion long-term development bond the government intends to generate from the local market within the next five years.
A prospectus published by the Reserve Bank of Malawi (RBM) indicates that the bond will be auctioned today on the MSE at a coupon rate or interest rate of 16 percent per annum.
It further shows that eligibility is unrestricted.
However, participants should offer a minimum bid size of K1 million and multiples of K100,000.00 thereafter.
The prospectus also indicates that the money raised will be used for five development projects including construction of the Balaka Market, Salima- Nkhata Bay Road, the Ntcheu- Tsangano-Neno-Mwanza Road, an Aquatic complex at Kamuzu Institute for Sports, the Jenda-Edingeni- Engalaweni Road and the Dzaleka-Ntchisi-Mpalo– Malomo Road.
In an interview yesterday, Treasury spokesperson Williams Banda said the K1 million participation amount is the standard for government bonds.
“All Treasury notes have that as minimum. We are starting with the five projects, as per the prospectus, out of the 16 projects earmarked for such bonds. The money will be used strictly for these projects,” Banda said.
In a separate interview MSE Operations Manager Kelline Kanyangala said the public could still participate via fund managers who will normally pull investment funds to invest in investment assets including the development bond.
“If listed, they can still participate through buying the same on the Exchange; the minimum is K1000. Mostly the minimum is set in place to cut down on administrative issues especially when dealing with a huge issuance amount,” Kanyangala said.
In an earlier interview, Economics Association of Malawi (Ecama) Executive Director Frank Chikuta said this will only be a good move if the borrowing finances development projects and not consumption as has been the case.
“This will be a good move if the return on the projects to be financed is enough to cover the cost of the borrowing. Since these are development projects, there are benefits that will accrue such as job creation. Also they are starting with K20 billion; so, we expect that how the market will react to the first issue will give an indication of whether the market is ready to absorb all the securities or not,” Chikuta said.
The government is expected to raise K1 trillion from the local market over a period of five years to finance what it calls flagship projects.
Recently, the government issued a K32.3 billion three– year Treasury Note in which out of 26 bids, 20 were successful at a weighted average yield of 18.99 percent.