Mozambique: Investor demand for treasury bonds twice supply as €11.8M placed

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Mozambique: Investor demand for treasury bonds twice supply as €11.8M placed

4:08 CAT | 19 Jul 2024

File photo: Lusa

This week Mozambique placed 824 million meticais (€11.8 million) in treasury bonds with investors, with demand almost twice supply, according to official data to which Lusa had access on Thursday.

According to information from the Mozambique Stock Exchange (BVM), this operation took place on Tuesday and the bids submitted by Specialised Treasury Bond Operators indicate that overall demand was 1.511 billion meticais (€21.6 million), representing a ratio between demand and supply of 183.37%.

The issue (the eighth series of 2024) was for direct subscription by Specialised Operators, and raised the amount sought by the state. It closed with an average yield of 16%, with a maturity of five years.

This is the second operation of its kind on the stock exchange this month, after on the 2nd the state placed 2.270 billion meticais (€32.5 million), also through direct subscription by Specialised Operators in Treasury Bonds, with a maturity of five years.

For this issue (reopening of the seventh series of 2024), the state will also pay a fixed interest of 16% during the first four half-yearly payments and variable interest in the last six half-yearly payments, according to information from BVM, after calculating the results of the operation.

Domestic public debt issued by Mozambique totals 364.251 billion meticais (€5.213 billion), after growing by the equivalent of more than €740 million in five months, according to Bank of Mozambique data released by Lusa in June.

According to the central bank’s Economic Situation and Inflation Outlook report for May, to which Lusa had access, domestic public debt contracted between December 2023 and May of this year, excluding that resulting from loan contracts, leases and overdue liabilities, “increased by around 51,910 million meticais” – equivalent to €743 million – by the end of May.

Overall, domestically issued debt at the same date represented the equivalent of 23.7% of Mozambique’s gross domestic product, and was essentially made up of Treasury Bills, with a stock on 28 May of 99.853 billion meticais (€1.429 billion), and Treasury Bonds, which totalled 169.089 billion meticais (€2.420 billion), as well as 95.309 billion meticais (€1.364 billion) in advances at the Bank of Mozambique.

In April, the 2023 public debt report from Mozambique’s Ministry of Economy and Finance warned of the pace of growth of domestic debt, which, if it continues, threatens the process of reversing its unsustainability: “If domestic debt continues to grow at the current rate over the next five years, the breakdown of the “stock” could balance out at 50% domestic/50% external by 2029, with a portfolio dominated by purely commercial instruments, a scenario that would jeopardise the chances of reversing the unsustainability of the debt in this generation.”

As the yields on Treasury Bills (BTs, short maturities) and Treasury Bonds (OTs, longer maturities) “have risen, the cost of domestic financing has driven a continuous upward adjustment of the weighted average interest rate on the government’s loan portfolio.”

The rate went from “5% in 2021 to 5.8% in 2022 and now 6.5% in 2023, making a cumulative increase of 150 basis points in two years,” notes the report, which also warns that the “refinancing risk, reflected in the growing concentration of maturities” of public debt “in the short-term horizon, represents the greatest vulnerability.”

Accumulated domestic debt up to 31 December 2023 amounted to the equivalent of $4.9113 billion (€4.616 billion). The weight of BT issues in the total stock rose from 4% in 2019 to 9% in 2023, while that of OTs doubled to 16% in the same period.

Source: Lusa