Last week, the government through the Bank of Namibia (BoN) put out an auction to borrow N$215 Million on Wednesday. But, the government ended up borrowing N$415 Million, citing its right to borrow as much or as little as it wants.
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 manner torn apart state’s borrowing plan as published. According to it, the state had planned to borrow N$315 million over two auctions in August.
Borrowing plans can be modified and are not fixed. However, this overborrowing pushes it into September’s borrowing. The state plans to hold two auctions for N$350m through bonds.
Kazembire Zimburuka, spokesperson at BoN, said that the bank will defend its decision to overborrow. The bank can reject any tender or over-allot it if it is favourable or not 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 possible due to many offers worth N$589 millions, even though the state only wanted N$215 million.
Fixed-rate bonds GC26 to GC28 were up for auction.
These bonds were initially offered to raise N$175million but ended up raising over N$360million.
The auction also featured inflation bonds GI27 and GI29, GI33, GI33, and GI36. They were all looking to raise N$10 millions each but ended up bringing home more than N$55 million.
While all the bonds on offer were well-subscribed, not all were over-allotted. Only the GC26 and GC45 bonds received allotments equal or greater than 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 were mostly from ILB27, and ILB29 inflation-linked bonds. Each was short N$3million.
These instruments received only two bids per bond.
The treasury is not known to over-allot, although there have been several episodes of under-allotment – mainly because of under-subscriptions.
Analysts say that the government now has many options, and will wipe the market clean of all cheap debt, regardless of whether or not the calendar is followed.
Although the central bank did not provide any explanations for the over-allotments or how often they occur, it stated that it was entitled to allocate as it deems appropriate according to market conditions.
This over-allotment means that funds, which would otherwise have been redirected to investors elsewhere, were swept away state-wide, displacing 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 against government borrowing this year for mainly spending purposes and that no significant growth can be expected.
Email: [email protected]
Twitter: @Lasarus_A
Source: namibian
