Govt to introduce Century, Green, Samurai & Panda bonds

By Elorm Desewu

The government is planning to introduce new bonds this year as a move to diversify investor base.

As part of the strategy, government will explore the possibility of issuing new financing instruments such as Century bond, Green bond, Samurai bond and Panda bond, among many others, to diversify the investor base.

This part of the government debt strategy for the country over the medium term.

The financing strategy for 2019 best responds to Government’s intention to diversify the investor base and currency structure. The strategy also seeks to continue the on-going liability management programme to manage the risks embedded in the public debt portfolio and develop the domestic debt market. 

The strategic risk benchmarks set out in the 2019-2022 MTDS are aimed at monitoring and, ultimately, reducing foreign currency risk, interest rate risk, and refinancing risk embedded in the public debt portfolio.

Accordingly, the debt management strategy for 2019-2022 was formulated and clearly articulated in the 2019 Budget Statement and Economic Policy, in line with the Medium-Term Fiscal Framework.

The debt management strategy was developed to propose financing for the 2019-2022 medium-term and intends to achieve the following specific objectives: meet government’s funding needs on a timely basis and at a relatively lower cost subject to prudent levels of risk; promote the development of efficient primary and secondary markets; and pursue any other action considered to impact to positively on the public debt stock.

The strategy envisages the continuous issuance of medium-term bonds (especially 5-year bonds) and longer-dated bonds (7-year, 10-year & 15-year bonds) in the domestic market over the strategy period.

The strategy assumes a sovereign bond issue of up to US$3.0 billion on the ICM, with proceeds of about US$2.0 billion to fund the budget and US$1.0 billion to be used for liability management. The strategy also envisions the issuance of domestic debt against possible contingent liabilities that may arise in 2019.

According to the debt strategy, the management of refinancing risk will be pursued to avoid bunching of debt service obligations and/or rollover risks, which may lead to liquidity crisis and/or excessive increase in the cost of debt servicing.

Over the medium-term, the share of floating rate debt in total of external debt is expected to be within a range of 15-20 percent, while the share of the entire public debt portfolio facing interest rate resetting in a year is not expected to be more than 30 percent.