Treasury seizes low bonds bids advantage

This money was to be lent to the government through the issuance of government bonds – the third hot asset class for the first half of this year, according to a Cirrus Capital ranking.

This overborrowing has in a way torn apart the borrowing plan of the state as published, according to which it had planned to borrow only N$315 million over two auctions for August.

Borrowing plans are not fixed and can be amended, but this overborrowing pushes the plan ahead into September's borrowing, for which the state plans to hold two more auctions for N$350 million through bonds.

Defending the decision to overborrow, BoN spokesperson Kazembire Zemburuka says the bank reserves the right to allot more or less than the offer amount by either over-allotting or rejecting any tender if the bids are favourable or unfavourable against market rates.

“It is against this background that the bank has exercised this right at the auction that was held today by cutting off bids that were out of price and over-allocated on bonds where the price was more favourable,” he says.

This overborrowing was also made possible by many offers for which bids worth N$589 million were received, regardless of the state only wanting to borrow N$215 million.

On auction were fixed-rate bonds GC26, GC28, GC32, GC35, GC37, GC40, GC43, GC45, GC48 and GC50.

These bonds were on offer to raise only N$175 million, but eventually raised over N$360 million.

Inflation bonds GI27, GI29, GI33 and the GI36 were also all on auction seeking to raise N$10 million each, but ended up bringing in over N$55 million.

Although all bonds on offer were oversubscribed, not all bonds were over-allotted. The GC26 and GC45 were the only bonds that received allotments equal to auction offers.

Others, such as the GC50, were alloted over five times the amount that was on offer – N$15 million was on offer at auction, but the state allotted over N$78 million.

The bids that were rejected mainly came from inflation-linked bonds ILB27 and ILB29, which were short N$3 million each.

Only two bids per bond were received for these instruments.

The treasury is not known to over-allot, although there have been several episodes of under-allotment – mainly because of under-subscriptions.

Some analysts say the government now has many options and will sweep the market clean of any cheap debt, not caring whether the calendar is followed or not.

The central bank did not explain the over-allotments and how often this happens, but said it had the right to allot as it pleases according to market needs.

This over-allotment means funds that would otherwise have been redirected by investors elsewhere, have been swept away by the state, crowding out private investments.

Investment professional Immanuel Kadhila late last month said the shallow nature of Namibia's capital market, the infrastructure funding gap, and the size of the country's long-term savings make a good case for infrastructure/project bonds, which could otherwise sweep up some of the available cash now locked up in government bonds.

Analysts have warned that government borrowing for this year would mainly fund expenditure, and that no meaningful growth is to be expected as a result.

Email: lazarus@namibian.com.na

Twitter: @Lasarus_A