Africa-Press – Namibia. IN a span of about two weeks, investors into government bonds have offered to lend the state N$1,6 billion, despite the treasury only needing N$450 million.
This has led to an oversubscription of almost 400%, indicating that there is much available cash chasing very few long-term investable financial instruments such as bonds.
According to the auction results released by the Bank of Namibia, all bonds in issue were oversubscribed for the two rounds for the 23 May and 8 June government bond auctions this year.
The average oversubscription for the two rounds was at N$100 million for normal bonds, and N$55,8 million for inflation-linked bonds.
These oversubscription averages are way more than the asked auction value, which averaged at N$37 million for normal bonds and N$20 million for inflation-linked bonds.
In his recent fixed income analysis report, Simonis Storm analyst Theo Klein had said there has been an elevated increase in the demand of Namibian issued bonds throughout May, and yesterday’s auction results show that demand is still at its peak.
Focusing only on the auctions held on 23 May and 8 June – the auctions were held seeking for N$235 million for the May date and N$215 million for the June bond.
What investors, however, threw to the state was more than it could accommodate, with over N$767 million worth of bids being received for the May auction and N$908 millon for the June auction.
Despite the June auction being smaller in terms of value, the value offered was N$141 million more than the May auction.
Simonis, in their May 2022 analysis report, said with rising domestic demand for Namibian bonds in recent months, local bond yields are likely to be influenced by local investor risk perceptions on public debt sustainability and individual future economic growth outlooks.
If foreigners continue to sell off South African bonds and yields rise further, benchmark movements will lead to higher bond yields in Namibia in turn, he said.
Of the two auctions under review – the most demanded bonds were those that are set to mature between 13 and 23 years.
Klein said for May 2022, overall demand for local fixed rate bonds continues on an increasing trend since the start of the year, with year-to-date average bid-to-cover ratios having increased for all bonds, except GC50.
“From primary auctions held in May 2022, the highest demand was recorded for GC35, GC37 and GC40 (the same as in April 2022). A significant increase in bid-to-cover ratios was seen in the last two auctions in May 2022,” he said.
Medium- to long-term bonds experienced a five-fold increase in demand, with bid-to-cover ratios averaging 4,8 between GC32 and GC43, he said.
“These were the highest bid-to-cover ratios recorded since early 2019 for GC35, GC37 and GC40, and the highest since mid-2020 for GC32 and GC43,” he noted.
This oversubscription over the last few auctions comes at the time when the government said it would borrow another N$900 million for use at the end of the year, adjusting the nation’s borrowing plan further upward.
For the 2022/23 fiscal year, the treasury will be running 20 active bonds, which are expected to rake in at least N$7,2 billion of the total borrowing requirement.
In what appears to be an affordability turn, the Bank of Namibia had also announced that the state was reallocating part of the money which was supposed to be borrowed from international markets to be sourced in the country.
According to the central bank, N$1,5 billion, which was initially envisaged to be raised from external sources, has been re-allocated to fixed-rate bonds (primarily during coupon payment months)” .
The state already had plans to borrow N$10,2 billion from the country, and the new revision will have local industry coughing up 60% of the country’s N$19,4 billion borrowing requirement. Overall, national debt is expected to hit N$140 billion this year.
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