By Patrick Kagenda
The PTA bank last week raised Shs 8.5 Bn in the first tranche of its Shs 40Bn bond issued on the Ugandan market. Dr. Michael Gondwe, the PTA bank president explains its strategy.
How do you rate the performance of your bond?
The bond took quite a bit of time sensitising the would be investors, the timing was well coordinated, we did benefit from the first bond that we successfully issued on this market in 1999 and that is why we are looking to this other bond being much more successful.
What should the investors expect given the pricing of this bond?
The issue of interest rates is a complex because it is not a case of just saying you raise the money at 14% and therefore you are going to loan it at 15%-16%. When you are giving out loans you asses the risk of the client and you determine the tenor. All I can say is that it will be between 16%-18% but the final pricing will depend on the tenor that the client is going to ask for.
How is the long-term financing affecting the operations of the PTA bank?
Our countries decided to put up the PTA bank to help alleviate that shortage in order to build our entrepreneurship. Most often we are told there is a shortage of financing but sitting from the banking side, we see that most critically there is a shortage of ideas to finance. Banking is a very sensitive industry like you saw last year a bank like the Lehman brothers which had been in operation for 160 years. They were discussing in the morning how they could help it to survive but by the afternoon it was gone. Invariably banks will require that people organise their ideas to the extent that they can show to the financier that these ideas are able to yield certain products which will end up on the market and in that market make sure it will earn some income which will then be able to pay back the loan and also sustain the business. The other challenge is the small entrepreneur’s failure to start and manage the business. They fail to distinguish between the business resources and the personal resources. In Uganda we have found a few ideas that we are financing in the horticulture, housing, pharmaceutical and other areas. We are still looking for more.
What is the equity base of the PTA bank?
The bank has an authorised capital base of US$ 2 billion. The subscribed capital is about US $ 1.1billion. This being a development financial institution the capital base is not a straight forward concept of what is sitting on the balance sheet.
What are the gains to the PTA bank when you issue the local currency bonds?
When we lend to our clients in local currency we earn the margin and obviously the margin is in the local currency and depending on our risk assessment that will actually be more attractive than the margin on dollars or Euros. The other benefit is that when you lend to a client who is not exposed to foreign currency risks, but are able to match their revenues from the project with what they are paying out on their loan obligation, you have a better performing client as opposed to one where you lent in dollars to a client generating Shillings revenues and when the Shillings depreciate the client then runs into difficulty. It’s a good quality portfolio because of being able to avoid the currency mismatch.
Was the timing for this bond favourable considering that the market has just had a syndicated loan to the tune of US$100 million and other bonds in less than three months?
Our note had been structured by a way of a programme which runs for 12 months. This means that irrespective of what happened just before we came, we have a whole twelve months within which to realise our objectives. We believe the timing was ideal and we are very confident that we will be able to raise all the money that we intend to raise.
What are the benefits that the retail market is going to get in investing in this bond?
The benefits for both the retail and the institutional investors in this case are the same. If you invested Shs 10million in this note you would earn 14%. You get a good rate of return which one could compare with 2% in a commercial bank or 9%-10% with the government treasury bills.