The African Development Bank (AfDB) has approved the pula as a lending currency of the Bank and established a P5 billion Medium Term Note (MTN) Programme to issue pula denominated bonds in the local market.
In what is seen as an indication of local capital markets deepening as well as a boost for local companies seeking funding, the bonds are expected to be issued in tranches as and when demand arises and listed on the Botswana Stock Exchange (BSE).
Although the modalities of the tranches to be issued are still being worked out by AfDB, market development manager at the BSE, Thapelo Moribame said at P5 billion, the size of the MTN programme is a sign that the multilateral institution is confident of raising such much money in Botswana over time.
“For us, this showcases our market to the world and is a strong selling point. AfDB is an international issuer and if you look at Africa alone, they have established local currency issuance programmes in just a few countries, including Botswana. The presence of a supranational is a token of confidence in our market and it communicates a positive message to other international issuers about the capacity of our market,” she said.
Along with the authorisation to issue in the local market, the AfDB received various waivers from the Botswana Stock Exchange (BSE), the Botswana Unified Revenue Service and the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) to make the issuances more attractive to investors.
“This MTN is intended to meet the funding needs of local borrowers, government and private sector, over the years by ensuring that the Bank is able to tap into the programme to issue tranches as and when demand for capital arises. This directly contributes to the increases in bond issuances, the depth of issuances, and the diversity of the domestic bond market and provides assets for long institutional funds,” she added.
The AfDB has issued bonds in local currencies on three African Exchanges including; the Johannesburg Stock Exchange (JSE), Nigerian Stock Exchange (NSE) and the Uganda Stock Exchange (USE).
According to the stock exchanges, at the end of December 2016, more than $500 million was raised in aggregate and 81% of this amount has been listed on the JSE.
The AfDB programme is set to deepen Botswana’s bond market after the International Finance Corporation (IFC) listed a P250 million bond on the BSE this week.
The IFC, a sister organisation of the World Bank, unveiled its debut Kgalagadi Bond to finance a $25 million (P250 million) investment in the Botswana Building Society (BBS).
The IFC investment in the BBS comprises a senior loan equivalent to $25 million in local currency.
The Kgalagadi Bond, which was over-subscribed, is the first local currency bond issued by a non-resident issuer in Botswana and also the first by an AAA-rated institution in the country.
The IFC investment will help to strengthen BBS’s financial stability and assist the demutualised society to introduce new products and services for under-served market segments, including Small and Medium Enterprises.