The Botswana bond market is steadily growing as illustrated by its market capitalization that had reached P6.7 billion at the end of December 2010.
In an interview with Sunday Standard, Botswana Stock Exchange (BSE) Product Development Manager, Tshepo Tsheole, said the bond market growth is underpinned by suppressed equity prices as most issuers prefer the debt market when the share (equity) prices plunge.
He said the other factor that boosts the bond (debt) market is the low interest rate that is paid by the issuers to the buyers.
Tsheole said the bond market had registered an 11.7 percent growth at the end of last year on the P6 billion market capitalization of 2009, adding that in comparison to 2006, the market capitalization had grown by 75 percent.
According to Tsheole, the bond market capitalization accounted for 7.4 percent of the country’s Gross Domestic Product (GDP) in 2010, a marginal increase from 7.2 percent in 2009.
As at end of 2010, there were 36 bonds listed on the BSE although only 10 of the bonds traded in the year under review. There are two government bonds which are not listed on the bourse although they are traded on the counter.
The debt market turnover registered a growth of 18.4 percent in 2010 with bonds valued at P757.7 million traded during the year in comparison to P639.8 million in the previous year. Bonds valued at P539.3 million were traded in 2008.
Tsheole explained that the turnover was concentrated on the government bonds with securities valued at P747.1 million being traded in comparison to P10.4 million in corporate bonds, P180 000 in bonds issued by parastatals and P90 000 in bonds listed by quasi-government institutions.
“Trades in government bonds made up 98.6 percent of the total debt market turnover in 2010. The ratio of debt turnover as a percentage of market capitalization continued to improve over the years. The ratio reached 11.3 percent in 2010 compared to 9.9 percent and 10.6 percent in 2008 and 2009 respectively,” said Tsheole.
Commenting on the growth of the bond market in Botswana, Tsheole said he is happy with the growth and believes that the country is on the right track as there is potential of more bonds being listed by foreign companies in the Botswana debt market.
In order to develop the bond market, the BSE initiated the formation of a Bond Market Development Task Force with representation from primary dealers, asset managers, issuers, regulators and stockbrokers.
The objective of the initiative is to understand and appreciate the requirements of the industry in order to develop rules which would be conducive to listing, trading and settling bonds transactions on the BSE.
“The BSE is of the view that if successful, this initiative will improve liquidity of bond trading on the exchange”, said Tsheole.
He added that the task force has since consolidated the contributions of bond market participants and produced a draft bond market development strategy which has been distributed to industry participants and regulators for comments prior to finalization.
Tsheole concluded that there was need to create a serious and non-fragmented bond market.
