Saturday, July 2, 2022

Tsheole suggests a raft of changes to help region’s dull bond market

In a bid to create a vibrant debt market in the region, including Botswana, a financial markets pundit has suggested a raft of measures, including making the regulatory environment easier for the issuers.

In a paper he presented at the 10th annual South African and African Capital Markets Conference in Cape Town this week, at the invitation of IMN-New York, Thapelo Tsheole, Product Development Manager at BSE, noted the bond markets in Sub-Saharan Africa are small and inactive, which makes them to be overshadowed by equity market.

Speaking in his personal capacity at the conference, Tsheole suggested the creation of an enabling environment, post trading transparency, capacity and to put supporting institutions into place.

“All what the company want is to raise capital and use that capital for its investment opportunities and there is no need to take more than 6 months or so in dealing with bureaucratic processes,” he said, adding that the listing and trading rules need to be modernised to be reflective of the international best practices and principles.

Tsheole said in addition to the robust market infrastructure (trading, clearing and settlements) in these markets there is a need for pre and post trading transparency.

The trading market is not only about money but information before and after trading is vital, he said.

Equally, he suggested a need for skilled and informed intermediaries, especially for markets outside South Africa.

The bonds markets in Sub-Saharan Africa are small and inactive with the rest of Africa accounting for about 2 percent of global bond market turnover and South Africa dominating the total bond turnover in Africa at 96 percent of total African turnover.
As at mid November 2012, Botswana’s debt market turnover was P300 million, compared to P325.1 million and a record P757.7 million in 2011 and 2010, respectively.

At the moment, Botswana’s bond market capitalisation as a percentage of GDP is 7.1 percent compared to about South Africa’s bond market size of 47 percent of GDP, Zambia 8, Kenya 24 percent and Ghana’s 11 percent of GDP.

The Botswana bond market is still small with only 36 bonds listed of which 6 are government and 30 are quasi, parastatals and corporate bonds.

Equally, Botswana’s biggest trading partner in the region, South Africa, has seen a lot of capital inflows as the country has about 1,077 bonds (134 government & 943 Corporate).

On the other hand, Zambia has 207 bonds (200 government and 7 corporate), Ghana 106 (105 Government and 1 corporate) while Kenya has about 87 bonds. Compared to other African markets Botswana has a good mix of issuance, although liquidity remains a challenge.
These markets all have infrastructure capabilities to trade and settlement bonds through their Automated Trading Systems and Central Securities Depositories.

“There is also a need for informed and diversified investor base because a heterogeneous investor base is crucial for “creating a market”, a meeting place for investors with differing views! There is also a great need for fostering relationships between issuers, regulators and investors as this will enable the understanding of each other needs and value creation.”

The growth of the bond market in Sub Sahara is hindered by relatively high cost of issuance due to their onerous and equity oriented listing requirements; illiquidity where most SSA bond markets are dominated by BUY and HOLD investment strategies of their respective asset managers and this result in limited secondary market trading.

“In cases like Botswana, these strategies are a result of lack of enough instruments in the market. Standard market conventions are also non-existing in other markets and this affect the pricing of bonds and impede trading,” noted Tsheole.
However, Tsheole pointed out there are various initiatives across region aiming at harmonising listing rules based on common international best practices and principles.

“In Botswana, there are initiatives such as the setting up of a Bond market development forum/association made up of market participants and regulators, the Botswana Stock Exchange has commenced the dematerialisation of bonds in the CSD and discussion are under way with various stakeholders to “create a market” by making trading and settlement & information dissemination efficient by leveraging on the ATS which was launched in October 2012,” he said.

“The BSE is also in the process of finalizing standard market convention like a standard bond & other fixed instrument calculator for the market.”

The BSE has also, effective 21st November, commenced testing/trials for the Bond Index which will be launched early 2013.


Read this week's paper