By Joan Akello
The officer in charge of the African Development Bank (AfDB), Jason Mosomi Mochache says the 2 year local currency bond that attracts 25 percent yield will finance infrastructure and develop African capital markets. It is noted that foreign currency denominated liabilities have frequently financed local currency activities while the stock of foreign currency denominated assets has been limited.
“The Uganda issuance is part of AfDB’s plan to launch more local currency bonds across the continent with proceeds used to provide local currency bonds to the bank’s clients….particularly to mitigating foreign exchange risk posed by hard currency loans,” Mochache said.
The foreign exchange risk can be traced through insolvencies, financial crisis and fall in economic output that may result in large and unexpected depreciation of the domestic currency. The AAA rated bank says it is ready to lend any Ugandan who requests however for financing in the foreign currency.
Under the local currency initiative , AfDB wants to diversify its local currency portfolio across African regions beyond the South African Rand which is the multilateral lender’s third largest lending currency. In the past, multilateral development banks AfDB inclusive offered loans in foreign currency.
The benefits of local currency bonds include setting new benchmarks, stretching the yield curve, introducing innovations and providing significant diversification opportunities for local institutional investors such as insurance companies and pension funds. Mochache says the local currency bond will enable people to borrow and refund.
This second issuance under the bank’s Medium Term Note(MTN) programme established in 2012 , for an amount of Shs 12.5 billion Mochache says was offered as a tap sale on the original note issued in July 2012 and was opened for subscription until May 27. The bank reported that the second tranche just like the first issuance (Shs 12.5) was oversubscribed reaching approximately Shs 19.5 billion. This was Shs 1.5 Billion higher than the Shs 18 billion subscription in the first tranche.
Angela Kanyima , director legal department in Capital Markets Authority – representing the CEO said the issuance is “a sign that the market is growing” while Kenneth Kuitariko, CEO African Alliance Uganda (AfDB’s transaction advisor ) said the governing body is looking forward to the next tranche.
Mochache says the next tranche is dependent on the need and demand.
Joseph Kitamirike, the USE chief executive officer also told the press after the listing that the an automated trading system will be in force probably at the end of the third quarter.