Africa-Press – Eswatini. The Government of Eswatini is finally reaping the fruits of having become a sovereign borrower in the South African market after a successful E4 billion bond listing in the Johannesburg Stock Exchange (JSE).
Last week, government received communication that it has been granted about E400 million which has come as a result of a decision it took in early 2022 to seek a loan through issuing bonds on the JSE amounting to E4 billion. In terms of definition, issuing a bond is one way for companies and governments to raise money. Investopedia states that a bond functions as a loan between an investor and corporation (or government). The investor agrees to give the corporation (or government) a certain amount of money for a specific period of time.
In exchange, the investor receives periodic interest payments.
The Central Bank of Eswatini (CBE) website also states that government issues bonds to raise money needed to meet longer term budgetary needs and also in order to develop the domestic capital market, as they provide additional investment avenues for both institutional and individual investors.
Bigger chunk
Back to the E400 million windfall, if the sentiments of Minister of Finance Neal Rijkenberg contained in his 2024 budget speech are anything to go by, a bigger chunk of this money will pay owed government suppliers. When presenting the budget speech in February this year, the minister noted that the country’s cash flow remained constrained, and that as of the 12th of the same month, government had a list of E1.75 billion worth of payments at the Treasury Department. Of these, the minister had said in his speech, E750 million was to suppliers while the E1 billion was for government projects that had been budgeted for but waiting for funding before starting. Of great concern, Rijkenberg had said, was the amount of money outstanding to suppliers, of which a portion was moving beyond the 30-day payment term and that the amount had come down considerably over the last few years but remained an absolute priority to get under full control.
Bonds
It was in early 2022 when it was announced that plans were on course for the Government of Eswatini to tap into the E4 billion worth of funding through listing long term bonds in the JSE. This came after the attainment of approval from the South African Reserve Bank (SARB) by the local government to raise funds from the SA market. The Ministry of Finance, through the CBE as an agent of government in raising funding, explored the idea as a means to diversify funding sources through international markets. At the time, Rijkenberg said listing a long term bond issuance programme with the JSE would enable the Eswatini Government access to the SA financial markets.
The minister explained that South African banks had shown an appetite for Eswatini bonds and that such was a relatively low risk plan to raise financing due to the currency peg between the Lilangeni and the South African Rand. He pointed out that the proposal was within the context and ambit of Article 4 of the Common Monetary Area’s (CMA) Multilateral Monetary Agreement. Rijkenberg said following cashflow challenges faced by government and in consideration of the negative impact, it has on the aggregate economy, there exists an opportunity to expand the investor base by participating in the SA market.
The minister explained that such a market was very deep and had a diverse set of investors, with different investment horizons and risk appetite. Also, he explained at the time that the sheer size and complexity of the SA market encompassed all market segments, including investors, who were willing to purchase unsecured senior debt securities, which had similar credit rating to that of Eswatini. This, the minister had said, was expected to improve the subscription ratio (or rate) and the overall government funding costs.
Furthermore, he had mentioned that in the event the bond programme issuance got approved, government’s obligation would amount to E4 billion over a period of five years. Also, CBE Governor Dr Phil Mnisi spoke about the listing when presenting the 2023 Annual Monetary Policy Statement last year. Mnisi said with assistance from the Finance Ministry, they saw it fit that they should use this bond to bring money into the country. He said through this programme, the CBE was going to ensure that South African investors bought the bond and by so doing, the money would come to Eswatini and assist in government’s needs and ensure that the country’s economy improved.
The governor also assured that the benefits of the bond were that it would be in Rands, which meant that as the money came into the country it would contribute to the reserves. “If we can continue with this bond and the SACU receipts increase, we are expecting the import cover to increase and pass the four-month measure,” he explained. It should be noted that the basic listing process involves the following steps: Obtaining the authority to raise funds in the SA market from the reserve bank, appointment of lead manager and legal advisors.
Diversifying
Initially, the plan by government was to seek an amount of E5 billion, but the previous Parliament expressed concern on the importance of diversifying the economy to which Rijkenberg responded by saying the ministry was working tirelessly to address the country’s economic growth. When the E5 billion loan came to the fore, government said it was meant to address a litany of fiscal challenges. These included the hiring of additional nurses, payment of allowances for tertiary students and the sourcing of certain medication, among others. Before announcing the decision, there had been several petition deliveries from stakeholders in various sectors on issues that would require financing. Nurses had delivered a petition to the Prime Minister’s (PM) Office, calling for the hiring of healthcare workers to ease the pressure on the current employees.
This was as a result of the non-contract renewal of over 400 healthcare workers. At around the same time, tertiary students marched to the Ministry of Labour and Social Security to demand the release of their allowances, threatening not to return to class if their funds were not released. Government then issued a gazette dated April 21, 2022, which authorised Rijkenberg to raise funds in the form of several bonds not exceeding R5 billion (equivalent to E5 billion), through the bond issuance programme listed with the JSE for fiscal budget support.
It reads: “The minister is authorised to enter into an agreement with the lenders for the purpose of raising loans not exceeding E5 billion, over a five-year tenure in tranches informed by the government budgetary requirements. The loans shall be raised through various bonds issued by the Eswatini Government and listed on the South African Johannesburg Stock Exchange.” The gazette further stated that the borrower (being the Eswatini Government), shall issue a pricing supplement indicating the tenure and amount for each loan to be repaid, interest payment dates and the final redemption date, including the interest to be paid at the end of the loan. Despite that the programme sounded lucrative and had potential, doubts over it being a success arise from various sector.
Confidence
Firstly, in December last year, the CBE raised fears that the deteriorating confidence in South African politics and governance could have a negative impact on the programme. At the time, the CBE stated that the residual effects would be a weakened investor appetite for JSE listed securities, therefore, the bank was reported to be looking to increase focus in growing the local stock exchange to provide viable alternative to the JSE. The bank added that the deteriorating confidence in SA governance would also lead to the deterioration in correspondent banking relations for South Africa subsidiary banks resident in the country. Another fear was that an extended period of SA FAFT grey list, which meant South Africa was under increased monitoring to resolve swiftly the identified strategic deficiencies. CBE stated that as a means to mitigate the risk, the bank was exploring macro prudential optional to ring-fence Eswatini banks against potential risk from SA, which was a medium to long term plan.
Weakened
The deteriorating confidence in SA governance further placed a risk of upward inflationary pressure due to higher import prices driven by the weakened Rand/ Lilangeni. The residual effect is reported to be the increased Rand volatility and, therefore, CBE stated that the mitigation recommendation would be monetary policy considerations, which would aim to curb excessive upward inflationary measures.
Comfortable
When called for comment last week, Rijkenberg confirmed the good news saying: “This was a JSE release and we received E400 million that was priced according to the pricing that we were comfortable with. I think the money will actually land next week but basically, everything has gone very well.” Explaining further, the minister said what was likely to happen now was that probably in every quarter; the country will continue to receive something from the programme. “We had permission to raise up to E4 billion so we raised per cent of the approved gazette Act that we have to be able to do this.
Breakthrough
“It is a big breakthrough for Eswatini because it is its first time to list in another country’s stock exchange and get all the permissions,” he said. Also, Rijkenberg commended the CBE saying it led the process on behalf of government and did well.
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