Africa-Press – Namibia. THE government will not redeem most of the N$5,1 billion lent to it by investors through the GC23 bond, but is giving them the right to participate in other bonds – some maturing by 2050.
For its first run on swicthing these rights, N$730 million has already been reallocated, and more is expected as auctions further unfold during the year.
The Bank of Namibia (BoN) has facilitated this transaction, which has received over N$1 billion worth of bids, despite only N$730 million was to be switched yesterday.
The bond on auction, GC23, is set to mature in October 2023, and before the auction had an outstanding balance of N$5,1 billion.
Bond switches are not uncommon, and are normally conducted as debt-management tools.
With Namibia’s debt levels skyrocketing, analysts and credit-rating agencies have highlighted a high probability of the state rolling over a lot of debt over the medium term, and conducting switch auctions to allow breathing on debt redemption.
Debt-switch auctions are also a tool used by the treasury to restructure the maturity profile of outstanding debt, and to act as a cash-management tool to enable the government to mitigate rollover risk by smoothing the domestic debt-maturity profile towards bond redemptions.
According to an explainer by the BoN, this switching would allow current holders of the source bond (maturing bond) to shift their investments into other longer-term bonds well in advance, and to avoid the risk of not getting an allotment of other bonds upon the maturing of the bonds.
The switching is normally done in line with prevailing market yields for both the source and destination stock, but for the GC23, the BoN fixed the switch yield to maturity to only 8%, and also determined the new price.
This yield to maturity represents the rate of return earned on a bond when all interest payments and the redemption of the principal are settled.
The switching of the GC23 was distributed to destination bonds GC28, GC35, GC37, GC40, GC43, GC45, GC48, and GC50.
Not all holders of the GC23 bond are required to switch, but the rules of the switch state it would be done on a voluntary basis.
The N$730 million was allotted on the basis of the switch ratio, ranked from lowest to highest.
In its 2022/23 revised borrowing calendar, the treasury indicated it would run switch auctions this month and also next month.
Yesterday’s auction was the first for the year.
According to the auction results from the central bank, of the N$730 million switched, much ended up in the recently issued GC28 (N$379 million), giving the treasury five more years to redemption.
Bids to have the GC28 bond as a destination were at N$488 million, while the other bonds were allotted below N$100 million, and had bids below N$100 million.
Only the GC50 bond had bids of above N$100 million.
The GC23 bond was withdrawn from issuance at the beginning of this fiscal year, and had the state raising N$5,1 billion over its active lifetime.
In the borrowing strategy as released by the treasury this year, the state indicated that, given the high outstanding amounts and the concentration of debt maturities in the period between 2022 and 2025, the following bonds are also off the run and would only be reopened during special auctions: GI21, GC22, GC23, GC24, GC25, and GC27.
Nonetheless, these bonds will remain tradable in the secondary market.
The funding plan also includes an introduction of a new fixed-rate bond, the GC28, maturing on 15 October 2028.
The GC28 to date has raised just about N$80 million.
For More News And Analysis About Namibia Follow Africa-Press
