Govt to raise N$7.5b from JSE

September 7, 2015, 10:51am

Govt to raise N$7.5b from JSE News Government

Government now intends to raise N$7.5 billion through floating bonds on the Johannesburg Stock Exchange instead of the initial target of N$3.5billion set a few years back during the tenure of Sara Kuugongelwa-Amadhila, The Villager can reveal. 

Finance Minister, Calle Schlettwein, confirmed to The Villager this week that government is anticipating to increase the bond to N$7.5b, but he could however not reveal when exactly this will be done. He added that it is a little too soon to speak on the matter. 

“We are anticipating to raise the bond programme by N$7.5b but I cannot say much on it as it is still too early,” 

This is the second time the Government is turning after previously raising N$800 million bond to fund the budget deficit earlier in the year 

This is a continuation of the medium term note programme of the N$3 billion bond the government listed in 2012 with the JSE whereby it raised N$850 000. Those funds were able to partly finance the budget deficit for the 2012/2013 fiscal year. 

Schlettwein said that later in the year that the government is set to also list another N$800m bond with the JSE. The N$800m bond is meant to partly finance the budget deficit of 2015/16. 

“This is our second issuance and this is part of our efforts to raise funds for the budget deficit, we are building on the listing of 2012. We are diversifying our debt instrument and it is a good policy to do so,” Schlettwein said. 

Schlettwein could however not tell The Villager how much the N$800m JSE bond is set to raise, saying that he will reveal that information at a later stage. 

“We are tapping into the JSE because we are trying to avoid foreign exchange when listing with larger markets. The listing will also help with reserves and it is a part of our complete borrowing plan,” Schlettwein said. 

The JSE is the only international market the government has listed on which means Namibia manages its debt really well. 

The government also borrows funds for infrastructure development and since development/infrastructure expenditure is of long term nature and thus only yields returns over a longer period, it is imperative for government to balance the composition of debt by choosing bonds which are long term source of financing to finance infrastructure projects. 

The country listing on the JSE limits currency risks and the country taking Euro Bonds may turn out to be more expensive. The JSE listing for the country was a strategic move as it reduces any other foreign debt. 

The bond issued in the South African markets is denominated in the Rand which means there is no exchange risk for Namibia given the one-to-one exchange rate arrangements. 

This means it is similar to borrowing in Namibia Dollar. In terms of utilization, the funds were used to increase the productive capacity of the economy which will generate more income for the country. 

If a loan is largely made up of foreign currency then a foreign-exchange risk is always there especially if the currency depreciates, which in turn results in more payments. 

In 2011, the country sold $500 million of Eurobonds and thus there was concern about the effect of currency depreciation on repayments. 

This in turn led to the current depreciation of the Namibia dollar implies that the amount for interest payment and repayment is currently much higher in Namibian dollar than at the time the Eurobond was issued 

However, according to the latest statistics government debt increased to N$35.74 billion by 15.71% annually with projected figures for foreign debt representing a growth of 3.81% year-on-year (y-o-y) mainly due to the weakness in rand. 

Government had to turn to the foreign markets because the Namibian Sovereign Debt Management Strategy sets domestic borrowing at a ceiling of 80% of total debt, while on foreign borrowing the limit is 20%, which she says keeps the annual borrowing plan at 80:20 ratios. 

Thus a large share or 80% of the Government budget deficit is meant to be funded through issuance of treasury bills and bonds in the domestic market. Only a smaller portion or 20% will be funded through foreign borrowing, i.e. JSE listed bond. 

In addition, the combinations of the debt instruments must be issued in both the domestic and international market as per the ratios of 80:20. 

Generally the government budget includes revenue and expenditure components. The Expenditure component consists of operational budget and development budget that include infrastructure financing. Therefore, the operational expenditure combined with development budget is the main driver of the recurrent budget. 

Namibia should pay 20% of public deficit in 2015, with borrowing on the JSE.

by Charmaine Ngatijheue