Saturday, October 16, 2021

Access to bond market a ‘nice problem’ – Tsheole

Without making the bond market attractive to investors, its use will remain untapped 

The bond market conference, which attracted a luminous participation of diverse market participants last week Thursday, delivered the message of building a culture that encourages borrowers to access more regularly. 

The remarks made by Zoya Sisulu, Standard Bank’s Head of Debt Primary Market Southern and Central Africa, conveyed the overarching message expressed by Botswana Stock Exchange’s Chief Executive Officer (CEO) Thapelo Tsheole that the assemblage of the market participants calls for a collective innovative spirit in deepening the bond market.      

Sisulu expounded that such a culture would prove the viability of the bond market as an alternative funding mechanism that is very comparable to what borrowers currently have available to them such as bank funding. 

She expressed the need to provide understanding of debt in the context of the capital market. She offered her view that there’s generally nervousness amongst issuers which can be abated by facilitating an enabling environment for issuers to access the market. 

The advantage of creating this environment, as was indicated by Sisulu, is that as borrowers move away from the safety of bank funding it will then assist the local market to address its biggest challenge of a paucity of assets to invest into. 

In articulating the challenge Tsheole expressed that there was too much money chasing too few assets, which he described as a “nice problem” that the market was contending with. This is in contrast to other markets where the challenge is typically with the absence of funds. This “nice problem”, according to Tsheole, presents an opportunity to market participants to develop products that can absorb the readily available funds given that the potential exists. This problem, as Tsheole indicated, compounds the challenge of asset managers buying and holding assets which as was explained by Kholiswa Zondani, Fixed Income Business Development Manager at Thomson Reuters, South Africa, is in part attributable to the lack of benchmarks which assist investors to value the asset and as a result be able to sell it. 

Another reason for the buy and hold practice that was discussed is the limited activity in the secondary market which is explained by the few assets issued into it which gives investors an inflexibility in trading the assets.     

“Very few issuers come to market,” said Botswana Public Officers Pension Fund (BPOPF)’s Chief Executive Officer (CEO) Boitumelo Molefe in corroborating the reality of an absence of assets, a problem she said has traditionally persisted and cannot continue to be cited. BPOPF is reported to have surplus funds seeking assets to be tied to. Molefe identified the lack of active intermediary entities that can link organisations that issue bonds with investors. 

In assessing the total credit granted by various funding institutions Molefe pointed out that bonds were tailing behind at 8.2 percent in comparison to 33.2 percent offered by banks. The figures prove that the use of the bond market as a source of funding remains an untapped potential. Molefe also confirmed the buy and hold practice by citing that institutional investors currently hold approximately 75 percent of the P12 billion of total domestic bonds on issue. 

Despite that Botswana’s market is regarded to be well placed within the context of the continent, trading as was alluded to by Tsheole is very thin. A flaw that was observed by the market participants is the poor information dissemination in the local market because of the separate trading platforms for government and corporate bonds respectively. The corporate bonds are traded under BSE whereas government bonds are traded under Bank of Botswana (BoB). This as was explained by Tsheole is disadvantageous as it results in late trade reporting  and poor transparency as the stock exchange receives the trade report the next day after trading has taken place at BoB. 

The participants urged for a merge of the two trading platforms, which as Vusi Mhlanzi, Chief Executive Officer of Basis Points Capital put it, “will go a long way in improving the ease of trading in the secondary market.” 

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