Government plans to debut a new bond at its forthcoming auction, which will seek to raise P450 million in borrowings from the local market, BusinessWeek has established.
The government, through Bank of Botswana, borrows quarterly from the local capital market mainly to develop the local market’s capacity but also to fund gaps in the national budget.
For the local market participants who bid for the right to lend to government, the bonds represent risk free, solid returns for investments.
Government bonds are also highly sought after vehicles used to match long-term liabilities for financial sector players.
Each auction is generally met with strong interest by the local market, as evidenced by high bid to cover ratios, a calculation used to express the demand for a particular security during offerings and auctions.
Notes released recently by the Ministry of Finance and Economic Development indicate that a new bond, BW016, with a face value of P450 million is expected to debut in one of the three auctions left in the current financial year. At present, the bond’s coupon (return offered) and maturity are not known.
The bond, when it floats, will join seven other notes government currently has outstanding as part of the P15 billion domestic note issuance programme.
On Wednesday, Botswana Bond Market Association secretary general, Kopano Bolokwe said even as the details of the new bond were awaited, its launch was a “very good” development for the market.
“As you would note, the Botswana yield curve has gaps in the maturity profile as the government has focussed on a small number of tenures, limiting the ability to price other debt securities off the yield curve,” he told BusinessWeek.
“It has been iterated that there is need for issuance in the two, three, five, seven, 10, 15, 20-year and beyond parts of the curve.
“This is very important as the government bond yield curve is the building block of the domestic bond market and the much needed maturity profiles have a very important role in the issuance or pricing of corporate bonds in those tenures.
“It is pleasing to see this consistent commitment to issue by the government.”
The Finance ministry’s notes show that in the current financial year, government intends to borrow a net of P2.6 billion from the local capital market in bonds, comprising the reopening of existing bonds and the debut of BW016.
By the end of the financial year, on March 31, 2020, government expects its domestic debt to be about P12.9 billion, well below the statutory limits set.
Thus far in this financial year, the government has raised P777 million in bond borrowings via an auction held on May 31.