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Namibian Government Bond Market. Background Strategies Outcomes of strategies Government bond market Measures taken Summary. Background. Namibia in CMA (RSA, Lesotho & Swaziland) Free flow of funds Tendency of funds flowing to more sophisticated RSA market (contractual savings)

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namibian government bond market
Namibian Government Bond Market
  • Background
  • Strategies
  • Outcomes of strategies
  • Government bond market
  • Measures taken
  • Summary
background
Background
  • Namibia in CMA (RSA, Lesotho & Swaziland)
    • Free flow of funds
    • Tendency of funds flowing to more sophisticated RSA market (contractual savings)
    • Banks dealing with counterparts in RSA
  • Poorly developed money and capital markets, poor infrastructure, lack of market activity
  • Challenge to develop local financial markets
strategies to develop local financial markets
Strategies to develop local financial markets
  • Fund budget deficit locally
    • Raise funds domestically
    • Issue securities to develop markets by forming benchmark issues
  • Liquid asset requirement for banks
    • Prudential requirements
    • Encourage demand for local securities
  • Tax incentives, exemptions
    • Individuals
    • Non-residents
  • Local investment requirements
    • 35% of assets to be invested locally
outcomes of strategies
Outcomes of strategies
  • Establishment of debt and equity markets
  • Namibian Stock Exchange
  • Stock broking firms
  • Asset Managers
  • Unit Trusts
  • Skills and capacity development
  • Interbank transactions
  • More issues by parastatals
government bond markets
Government Bond Markets
  • Bonds issued to fund deficit and develop market
  • First issue, 1992
    • Original maturity of less than 6 years
    • Number of bonds increased to 13 in 1998
  • 1998 trading was still sporadic and market highly fragmented and illiquid
  • Strategy bond consolidation
    • Buy back and issue new bonds
bond consolidation objectives
Bond Consolidation (Objectives)
  • Enhance liquidity by issuing few but large issues
  • Reduce cost of borrowing through reduced liquidity premiums
  • Reduce fragmentation and create local benchmark issues reasonably spread across the yield curve
  • Meet market needs by providing alternatives to investors and government as a borrower
  • Benchmark against RSA bonds for price referencing
bond consolidation results
Bond Consolidation (Results)
  • 13 Bonds consolidated into 3
    • GC02, 12%, due 2002, 4yrs
    • GC05, 12%, due 2005, 7 yrs
    • GC10, 12%, due 2010, 12 yrs
  • All these bonds were listed on the Namibian Stock Exchange (NSX)
current situation
Current Situation
  • Amount outstanding in bonds N$3.2 bln
    • Nearly 50% of Government domestic debt securities
  • Most of the trading on NSX and OTC
  • Bonds in issue
    • GC05-12%, GC07-12.5%, GC10-12%, GC15-13%
  • Challenges
    • Low activity and liquidity
    • Lack of market information
    • Relatively low demand for longer dated securities
reasons for current state of affairs
Reasons for current state of affairs
  • Buy and hold attitude
  • Passive management of bond portfolios
    • Lack of skills
    • Remote offices
  • Limited number of alternative issuers
  • Unison view in the market
  • Relatively low amount of debt outstanding
  • Absence of sovereign credit rating
measures taken secondary auctions
Measures Taken (secondary auctions)
  • Bring together willing buyers and sellers
  • Objectives
    • Establish regular market prices
    • Create degree of liquidity
    • Stimulate trading
    • Facilitate introduction of market makers
  • Success limited
    • Cyclical market
    • Unison view
measures taken switch auctions
Measures taken (switch auctions)
  • Switch from source to destination bonds
  • Objectives
    • Smooth redemption, alleviate cash flow
    • Reduce investor rollover risk
    • Increase benchmark bonds
    • Lengthen maturity structure
  • Results
    • Successful, GC02 redemption and increased benchmark bonds
other measures
Other Measures
  • Book Entry System
  • Frequent primary issues
  • Transparency and Infor
    • Brochures
    • Issue calendars
    • Full auction results
  • Debt Mgt Strategies
summary
Summary
  • Initiatives take resulted in some market development – various instruments across the yield curve and ability to fund deficit
  • Competitive and well functioning primary market
  • Challenges
    • Liquidity
    • Lack of market information
    • Relatively low demand at the longer end of yield curve
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