Local companies should tap into the abundant pool of funds in the domestic bond market to help boost depth and liquidity, says Thapelo Tsheole, Chief Executive Officer (CEO) at Botswana Stock Exchange (BSE).
Over the years the market has grown steadily, but observers pointed out that it has been relatively illiquid. In 2015, liquidity amounted to 8.5 percent compared to 5.0 percent in 2009.
In an interview with The Business Weekly & Review this week, Tsheole observes that local businesses that hardly borrow money are discouraged by a lack of innovation. He says businesses could be using excess money within the bond market to set up big projects and export to neighbouring countries. His worry is that, locally, “businesses are run to feed families, not to expand and export like in countries like South Africa”.
However, financial market experts at the just ended bond market conference were content that the sluggish growth of the bond market might be because of multiplying number of fearful issuers as borrowers tend to use banks as a source of funds. Available statistics show that capital market depth as a percentage of the Gross Domestic Product, bonds account for 8.2 percent compared to 33.2 percent of credits offered by banks.
As at 2015, the domestic bonds market accounted for 7.5 percent of the Gross Domestic Product. This is a modest improvement from 7.2 percent in 2009.
Tsheole observes that there is some untapped capacity to raise capital by issuing bonds and other debt instruments on the BSE. “Infrastructure alone cannot increase liquidity, ultimately all stakeholders have to play their roles in increasing liquidity,” he adds.
The domestic bourse leader says he is making some progress in addressing the challenges affecting the bond market so as to improve liquidity with the aid of Botswana Bond Market Association (BBMA).
However Tsheole is worried that this has been slow. “Awareness has to be continually raised about the benefits of promoting a centralized and automated bond market,” he urges, adding that the optimal benefits of bonds as an asset class is underpinned by a robust liquid bond market.
Unlike in other markets where the main challenge is typically the unavailability to funds, Tsheole said locally, there are abundant funds looking for assets. The concerns over the low levels of liquidity in the market led to the BSE in 2010 commissioning a fact finding mission to try and understand the structural impediments affecting the developments of the domestic market. The impediments as identified by BBMA include a lack of a robust risk free Curve, Pricing issues (non Uniforms conventions), lack of neutral bond indices, poor information dissemination (late trade, reporting & poor transparency) and infrequent issuance of government bonds and Treasury bills.
However some observers have argued that there has been an increase in the issuance of government bonds and corporate bonds as well as a greater diversity of issuance from the private sector ranging from retail, financial services and property to banking. The total market capitalization of bonds listed on the BSE stands at P11.6 billion, with 6 of the 39 bonds being government bonds, 3 quasi-government bonds and 30 corporate bonds.
The establishment of the bond market in Botswana was not entirely out of a necessity to borrow but rather out of intent by government to develop the market and maintain presence, an initiative that has facilitated and promoted issuances by the corporate sector.
The government has promised to maintain its stance in the market and create a raft of initiatives that will improve the performance. The Minister of Investment, Trade and Industry (MITI), Vincent Seretse said they highly prioritise the importance of maintaining a robust bond market for purposes of funding. “We have been building ourselves to get recognition in the financial market,” he said during the bond market conference adding that government is still a big player within the domestic market