INVESTING IN BONDS ON MALAWI STOCK EXCHANGE Overview of bonds on the stock market What are bonds? Simply put, these are moneys borrowed by Government, Local Governments (Such as cities, districts or towns), state owned corporations or a company. A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I owe you between the lender and borrower that includes the details of the loan and its payments. When you buy or invest in bonds you are lending money to the Government, state owned corporation or private company. Government Bonds. In general, fixed income securities are classified according to the length of time before maturity. What are bonds? Conti… There are two ways bonds can be acquired. In the primary market as well as the secondary market. The primary market is a market which allows sale of newly issued bonds. The primary market is also known as a new issue market. Newly issued bonds can be registered with the regulators for sale to the public (public offering) or sold only to qualified investors (private placement) The secondary market is the market place where investors can buy and sell bonds. A key difference compared to the primary market is that proceeds from the sale of bonds go to the counterparty, which could be an investor or a dealer, whereas in the primary market, money from investors goes directly to the issuer. Characteristics of bonds on the stock market Some of the characteristics of bonds include the following; Issue date- This is the date a bond is issued. Settlement date- This is date where the bond payment is due. Maturity date- This refers to the date when an investor bond's principal(money placed or invested) is repaid with interest. Coupon (interest) rate-This is the rate of interest paid by bond issuers( Government) on the face value for each investor. This is decided by the issuer of the bonds to the purchaser at the time of issue. Characteristics of bonds conti… Coupon frequency- The number of coupon times the bond holders receives i.e. annually, bi-annual and quarterly. Yield- This is the expected rate of return of an investor. Face Value- This is the amount that an investor receives at maturity. Why bonds are a great asset to add to your portfolio Bonds are considered a low-risk investment than stocks. They tend to be long-term investments and are considered a great way to diversify your investment portfolio. QUOTE OF THE DAY " Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows." — Jim Rogers. ... OUR CONTACTS Mr. Armstrong Kamphoni Email: kamphonia@cedarcapital.mw Mobile 0991449700 Mrs. Regina Nzima Kachingwe Email:nzimar@cedarcapital.mw Mobile 0888271290 Mrs. Mwaitabasa Kaipa Roka Email:kaipam@cedarcapital.mw Mobile 0994254330 Our website: www.cedarcapital.mw Telephone : 0111831995 THANK YOU BENEFITS & RISKS OF INVESTING IN BONDS Outline • Myths and Facts about Investing in bonds • The benefits of investing in bonds • Risks • Minimum amount one can invest in bonds WHY DO WE NOT HAVE MANY PEOPLE INVESTING IN BONDS ? • Benefits Scenario Elliana bought a two year bond on 1 January 2023 with a face value of MK100,000.00.The coupon rate is 10% per annum payable twice a year. Her expected yield (rate of return ) is 20%.Based on this scenario she will pay MK84,151.00 as the cost and she will be receiving coupons of MK5,000.00 every six months (MK10,000.00 per annum) Cash income from coupons With bonds, you’ll typically receive interest at least a couple of times per year. Coupon Payments Face Value (MK100,000.00) yield to maturity Coupon (10%) (20%) 1 5,000 2 5,000 3 5,000 4 100,000.00 5,000 Cost (MK84,151.00) Predictability of cash flow Unlike other classes of assets with Bonds the income streams can be predicted. Coupons payments Dates Face Value (MK100,000.00) Coupon (10%) 30 June 2023 5,000.00 31 December 2023 5.000.00 30 June 2024 5,000.00 31 December 2024 100,000.00 5,000.00 yield (20%) Cost (MK84,151.00) Bonds can help offset exposure to more volatile stock holdings. Bonds play a role in countering the potential risks associated with investing in equities and other more volatile assets. Priority of Payment in the event of liquidation Bonds are typically considered safer investments because bondholders have a higher claim on the issuing company's assets in the event of bankruptcy. In other words, if the company must sell or liquidate its assets, any proceeds will go to bondholders before ordinary shareholder. Risks Interest rate Risk Liquidity risk Credit risk Minimum Amount one can invest in Bond The bond Market has primary and secondary market. • The primary market the minimum for government Bonds is MK1,000,000.00 and there after in multiples of MK100,000.00 • The secondary market – The minimum for government Bonds is MK1,000.00 only Investment quote THANK YOU !!!! KONDWANI MAKWAKWA , FCCA. STOCKBROKERS MALAWI LTD EQUITY & MONEY MARKET DEALER Mobile: +265 881 635 149 Email: Kondwani@smlmw.com TYPES OF BONDS & HOW TO INVEST Participants in the bond market Financial intermediaries • Stockbroker • Asset Managers • Banks Investors/ lenders • Households • Government • Portfolio Managers • Insurance Companies • Non Financial- Corporations Issuers/ Borrowers • Government • Corporate Companies • Financial Institutions • Market Malawi Stock Exchange Types of Bonds according to Issuers Corporate Bonds – these are bonds issued by corporate companies Government Bonds – these are bonds issued by the government. i.e Treasury notes, Treasury bonds & Development bonds • Issued by private and state owned companies. Primary market • Corporate bonds are issued on the primary market through private placement. • The issuer identifies an arranger who in turn identifies investors in the bond. Secondary market • Following the primary issuance, the bond can be listed and traded on the Malawi Stock Exchange as the secondary market. • This is when the bond exchanges hands between different investors. • For example, in 2018 Centenary Bank issued a bond in excess of K12billion and listed it on the MSE. Treasury Bills • Treasury bills are short - term debt instruments. • For investors with a short - term investment objective. • They are issued in different tenors the maximum being 1year. 91 days, 182 days and 364days • They are issued at a discount and on maturity the investor receives the face value. Government bonds These bonds are issued by the Government through the Reserve Bank of Malawi. 1. Treasury Notes • Treasury Notes are paid back within a period of more than one year to 10 years. • For investors that have a long- term investment objective. • They are issued in different tenors and the maximum period is 10yrs. 2yrs, 3yrs, 5yrs, 7yrs and 10 years. • Investor receives coupons paid semi-annually and the face value on maturity. Government bonds…. 2. Infrastructure Development Bonds • These are issued by the Government to fund specific infrastructure development projects. • Usually, they offer a higher coupon than ordinary Treasury notes so as to encourage investors to participate. • These are issued in different tenors. 5yrs, 7yrs and 10yrs. • Government has been issuing IDBs since 2021 How to invest in bonds 1. Open an account with a stockbroker, asset manager, or a bank. 2. Deposit the investment amount. 3. Instruct the financial institution to buy the bonds (primary or secondary market). Requirements for opening an account: Copy of National ID Payslip or 3 months bank statement Utility bill How to invest in bonds…. Corporate Bonds • For bonds that are listed on the MSE, one can invest through a stockbroker. • For bonds being issued on the primary market, individual investors can invest through intermediaries such as Asset Managers. How to invest in bonds…. Treasury Notes and Development Bonds (i) Primary market • Government releases an issuance calendar showing the auction dates of different tenors i.e 2yrs, 3yrs, 5yrs, 7yrs and 10yrs. • A prospectus is issued with the details of the note or bond. • Through the market participant an investor should choose which tenor and which bond type they want to invest in. • They prefund with the market player. • The results are released on the very same day and the investor is communicated to if their bid was successful or not. (ii) Secondary market • The investor can trade bonds listed on the MSE through a stockbroker. • A deal confirmation is shared to the client once transaction is finalised. Sample of debt issuance calendar Investment Advice “Anyone who is not investing now is missing a tremendous opportunity” Carlos SLim Contact us today Kenneth M’madi +265-993-863-363 kmmadi@continental.mw Blantyre Branch Lillian Makawa +265-993-677-048 lmakawa@continental.mw Lilongwe Branch Tafadzwa Mwawa +265-997-295-959 tmwawa@continental.mw Blantyre Branch 0r 1st Floor Ulimi House Cnr Glyn Jones and Sharpe Road Blantyre 1st Floor Gowa House Africa Unity Avenue Lilongwe capital@continental.mw Thank you!!!
