By Delisa Thwala
On behalf of the Government of the Kingdom of Eswatini, the Central Bank of Eswatini has announced the issuance of the above-mentioned Government Bonds.
The coupon rates for these bonds are fixed at 10.50%, 11.00%, 11.50% and 12.00%, respectively. The Auction
The date will be September 25, 2024, for the sum of SZL E200,000,000.
This information was announced by The Central Bank of Eswatini through a press announcement on their social media platforms, mainly Facebook.
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The Bonds will be issued using the competitive multiple-bid auction model and are open to the public, including individuals and corporate and institutional investors.
“All investors should apply through the Primary Dealers who are the four local Commercial Banks. The purpose of the issuance is to develop the secondary market,
establish a fair market price that will compensate both the borrower and investors for interest rate risks, and facilitate financial intermediation, whilst also meeting Government budgetary
requirements,” read the statement.
Worth mentioning is that the applicable pricing supplements and other relevant documents on the issuance are available for viewing at the Financial Markets Department of the Central Bank.
According to the statement issued by the bank, the Issuer reserves the right to allocate an additional amount of up to 100% of the amount on offer on each bond. Investors submit application forms for bids through their Primary Dealers.
Investors should ensure that applications are submitted timely and that all bids are captured on the Central Securities Depository System (CSD) before 10:00 am on the stipulated auction date.
An economist, Mandla Shabangu, said these are risk-free long-term debt instruments (1 year and above) issued by the Central Bank of Eswatini on behalf of the Government of Eswatini.
Shabangu said when bonds are bought, one cannot cash them before maturity, but one can sell them in the secondary market either to a registered stockbroker or primarily a Dealer.
Because they are government-backed securities, they can be and are recognized as collateral by registered financial institutions.
“Government Bonds are issued under the provisions of the Treasury Bills and Government Stocks Act 1994 (as amended 2010), which sets a debt ceiling for the Minister for Finance on how much the government can borrow from the domestic market.
Government has instructed the Central Bank of Eswatini as a fiscal agent for the Government, to raise funds in the domestic market by issuing bonds,” said Shabangu.
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When explaining further, he said, the Government of Eswatini, like other governments, issues bonds to raise money needed to meet budgetary needs.
Shabangu said while the Government also finances its operations through taxation and levies, sometimes these amounts are not sufficient.
“ To finance the difference between the expenditure and the revenue (i.e. if it is a deficit), then the Government may borrow by issuing securities.
The Government also issues bonds to develop the domestic capital market as they provide additional investment avenues for both institutional and individual investors,” he said.
The Government issues bonds in large denominations with a minimum of E10,000
Bonds are sold at a discount, par, or premium to their face, meaning that you can pay less, equal more than the par amount, but at maturity, you receive the par amount if the bond is held to maturity.
If the bond is sold before maturity, the investor can either realise Capital gain or loss depending on the level of yields in the market.
If the market yield is the same as the purchase yield, there is no loss or gain; if the market yield is below the purchase yield, there is a capital gain ,and the opposite is true for a market yield above the purchase yield.
Depending on whether interest is paid annually or semi-annually, an investor receives a fixed interest amount from investing in a bond based on the coupon rate.
Worth mentioning is that auctions are open to all bidders at the Initial Public Offer (IPO) stage; this includes commercial banks, non-bank financial institutions, and stockbrokers, corporate and individual investors.
Non-residents are also eligible to participate. In the secondary market participation to sell or buy is through Primary Dealers and brokers.
Currently, the Primary Dealers are Eswatini Bank, First National Bank Eswatini, Standard Bank Eswatini and Nedbank Eswatini. The brokers are African Alliance Eswatini Securities Limited and Eswatini Stock Brokers.
