Page 20 - IB MAR 2019

Finance

Too much paperwork

Fiji’s corporate bond market struggles

more familiar services of banks and other
non-bank financial institutions when
they need to borrow money. A handful of
companies have used the equity or stock
market, where they borrow money from
the Fiji public in return for shares in their
By Dionisia Tabureguci company.
The bond market, where companies
ONEROUS documentation requirements borrow from the investing public with a
are responsible for the lack of development promise to pay a coupon interest rate on market.”
in Fiji’s corporate bond market, says the their investments for a scheduled time Fiji’s success internationally in the is-
International Finance Corporation. when this initial investment is fully paid suance of its sovereign bond and more
And efforts are under- recently its sovereign green
way to resurrect and re- “The idea for corporate debts is for a simplified and a bond, and the semblance
position the market, so it of a functioning domestic
provides private business- more focused set of requirements and also a narrow set bond market that currently
es and enterprises with exists via RBF’s Capital
another fully functioning of potential investors who will be institutional investors Markets Development Au-
debt option. like the pension funds, life insurance, unit trusts…those thority, are signs of this
“What’s going to make market’s ability to mobilise
the corporate bond market who have the sophistication to be able to analyse the funding for private sector
here work is a more simpli- risks involved.” development as well as
fied regulatory and legal expand options for Fiji’s
framework,” said Inter- ‘mum and dad’ investors.
national Finance Corpora- -IFC specialist, Aaron Levine The IFC’s review of the
tion (IFC) Senior Financial current state of the market
Sector Specialist Aaron Levine, in an back, is dominated by government’s an- has identified at least 10 companies as
interview with Islands Business. nual bond issuance as well as issuance potential issuers of corporate bonds, where
IFC is helping the Fiji government to from government-backed institutions such key investors already have equity in or
improve the corporate bond market and it as the Fiji Development Bank, Housing loans to many of the companies.
recently partnered with the Reserve Bank Authority of Fiji and Energy Fiji Ltd. Companies will no doubt be watching
of Fiji (RBF) and the South Pacific Stock As part of the latest IFC/Fiji govern- developments in this space, although their
Exchange (SPSE) to organise a corporate ment revival initiative, it is likely that new final decision to either issue bonds or go
bond forum in Suva, where stakeholders corporate bond offerings in Fiji would be to the bank would depend on a host of
from the private sector, banks, investment in the form of wholesale issuance, which other factors.
institutions and the capital markets were does not really require the greater level of “At the end of the day, there are certain
invited to brainstorm ways of strengthen- disclosure required in the equity market reasons why a company would choose
ing the market. and which is also provided for in the new where to go,” said Ivan Fong, CEO of
“Then it becomes about discussing and Company Act. Amalgamated Telecom Holdings, the big-
building a pipeline of issuance. In the past, “The idea for corporate debts is for gest SPSE-listed company by market capi-
if corporates looked at raising corporate a simplified and a more focused set of talisation at F$1.3 billion (US$0.6 billion).
bonds, they find that the documentary requirements and also a narrow set of “Each form of capital has its own costs,
requirements are very, very heavy. In fact, potential investors who will be institu- has its own benefits, its own disadvan-
they’re almost the same as documentary tional investors like the pension funds, life tages. I think the ability to create at least
requirements as when you’re raising eq- insurance, unit trusts…those who have the issuance of corporate bonds in Fiji
uity. Those in the financial sector know the sophistication to be able to analyse could be another interesting alternative
that when you’re issuing corporate debt, the risks involved,” said Levine. for corporations to be able to find capital to
the disclosure requirements really revolve “So the initial focus is on the wholesale finance their expansions and other things
around whether you are going to be able to corporate bond market. Other countries they want to do. Each party that you deal
make the interest repayments and if you’re around the world have found that setting with has its different requirements so it’s
going to be able to stay out of bankruptcy,” up a wholesale corporate bond market, about matching those requirements to
said Levine. where you can have a program of debt what the business needs at the end of the
Although Fiji’s bond market provides issuance, and where the issuer is someone day,” Fong added.
for enterprises that wish to raise capital credible in the market, like a listed com- For the individual or retail investors who
via bonds, only one company so far –Fi- pany that already has heavy disclosure wish to participate, the pathway would be
jian Holdings Ltd – has ever used it as an requirements or a financial institution through the unit trusts that they invest
avenue for capital raising, and this was already regulated by the Reserve Bank, in, which would, in turn, invest in the
in 2002. we find that that’s the kind of model that corporate bonds.
Fijian businesses tend to prefer the is able to kick start the corporate bond r dtabureguci@gmail.com

20 Islands Business, March 2019