Positive outlook for E5bn bond in JSE

MBABANE – Eswatini Government’s chances of securing a E5 billion bond with the Johannesburg Stock Exchange (JSE) are increased, with news that E1trillion is available for governments and corporates.

Government was given the green light by Parliament to list for the E5 billion Bond Issuance Programme, which will alleviate the cash flow challenges.

To pursue this end, government will have to list in the JSE under the name Government Securities of the Kingdom of Eswatini.

If the bond listing yields fruit, government will use part of the money raised to finance its budget deficit, which stood at E3.8 billion.

Currently, government is also faced with a daunting task of paying junior officers from the Royal Eswatini Police Service (REPS) and His Majesty’s Correctional Services (HMCS) who want eight-year delayed salary increments. This is also the time when government needs to consolidate its fiscal status to meet requirements of the coming years’ budgets.

The JSE posted recently that more than R1 trillion is currently listed on the JSE’s Debt Board and these instruments account for 90 per cent of all liquidity reported to the stock exchange.

Government entities issue bonds and list them on the JSE Debt Board to raise funds for large capital projects such as roads, power stations and hospitals. They have done so since the Debt Board’s inception in 1994. It was called the Bond Exchange of South Africa at that time.

How this works is that investors lend money to these entities (governments included) by buying the bonds they issue and list on the JSE Debt Board. Listing the bond on the JSE Debt Board improves the entities’ ability to raise finance because it allows investors to sell the loan to other investors should they wish to. Investors buy government bonds in order to earn for regular interest payments and receive the money they have lent back after a predetermined period.

Government bonds are said to be standing more chances of success because they are considered to be a less risky investment than corporate bonds.

Communications Officer in the Ministry of Finance Setsabile Dlamini said government was still on course for the bond programme though it was given the green light five months ago.

She said there were necessary procedures that could not been jumped, which included getting the necessary legal advice.

“But it must be understood that this is not a once off loan, but a bond issuance programme which entitles the country to participate in the South African market. We can benefit over a number of years after being part of the bond programme. So, in this case, it does not have timeline or deadline to be met,” she said.

When asking for the go-ahead in Parliament, Finance Minister Neal Rijkenberg had said the bond sought to diversify government’s funding sources by raising funds in the international markets.

“Following the cash flow challenges faced by the Government of the Kingdom of Eswatini and in consideration of the negative impact, it has on the aggregate economy, there is an opportunity to expand our investor base by participating in the South African market,” the minister said.

He described the JSE market as ‘very deep’ with a diverse set of investors, having different investment horizons and risk appetite.

The minister also said government would take advantage of that its currency is pegged to the Rand, which eliminates foreign exchange risk associated with external financing.

The bond issuance is also expected to increase the country’s debt stock, which currently stands at about E29.7 billion, equivalent to E38.1 per cent of gross domestic product (GDP).

Though this is the highest budget support instrument that the country has ever embarked on, it is not the only one. The African Development Bank (AfDB) support for Economic Recovery and Inclusive Growth loan amounted to US$36 million (E648m) and the International Bank for Reconstruction and Development (World Bank) also assisted with the Eswatini Economic Recovery Development Policy Loan II amounting to US$75 million (E1.3bn). The Central Bank of Eswatini (CBE) has already given the go ahead for the listing of the country in the JSE.

In its recent monetary policy statement the CBE said that as at September 16, 2022, Gross Official Reserves amounted to E7.4 billion equivalent to 2.7 months of import cover, which is below the levels observed for September 2021, where reserves were at E8.6 billion equivalent to 3.4 months of import cover.