By Delisa Thwala
The Central Bank of Eswatini (CBE) successfully auctioned bids totaling E300.6 million after an E200 million bid offer.
The auction held September 25, 2024, was a resounding success, with bids totaling E300.6 million despite an offer of E200 million in four benchmark bonds.
This was announced by CBE in a published statement on their social media platforms.
The Central Bank of Eswatini, acting as Agent for the Government of the Kingdom of Eswatini, auctioned four benchmark bonds of 3, 5, 7, and 10 years.
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In furtherance, 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 Stockbrokers.
“These bonds, which were re-openings, were issued under the E5 billion Bond Programme 2021, listed on the Eswatini Stock Exchange.
The purpose of the issuance was to develop the secondary market, establish a fair market price that would compensate both the borrower and investors for interest rate risks, and facilitate financial intermediation, while also meeting Government budgetary requirements,” read the statement.
Worth mentioning is that the total amount offered was E200 million, with bids received totaling E300.6 million, resulting in a bid-to-cover ratio of 150.3%.
The issuer reserved the right to allot an additional amount of up to 100% of the amount offered on each bond (the “green shoe” option).
This option was exercised, resulting in the allotment of all bids received, totaling E300.6 million. This was considered a huge success as the bids were allotted at competitive prices.
Worth noting is that Government bonds 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.
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 a Primary Dealer. Because they are government-backed securities, they can be and are recognized as collateral by registered financial institutions.
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According to the CBE, Government Bonds are issued under the provisions of the Treasury Bills and Government Stocks Act 1994 (as amended in 2010), which sets a debt ceiling for the Minister for Finance on how much the government can borrow from the domestic market.
The 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.
The CBE further explains that Bonds are issued electronically in a dematerialized form. Participants in the system are entitled to a statement of their holdings after every transaction, monthly, and are available on demand.
The Central Securities Depository System eliminates the need to print and manually handle securities and their risk of being lost, damaged, or stolen.
This system also reduces the amount of time needed to deliver the security, and also it is linked to the settlement system, which minimises the settlement risk.
Its efficiency is expected to stimulate secondary market activities and facilitate open market operations. Further, it makes it easier for all investors to pledge these securities as collateral to their financial institutions.
“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 value, meaning that you can pay less, equal, l, or 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 realize a Capital gain or loss depending on the level of yields in the market,” reads a report article by CBE.
It further states that 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.
