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Tanga Uwasa to issue Sh50 billion water bond
What you need to know:
- Tanga Uwasa follows the steps of Tanzania’s two largest commercial lenders, CRDB Bank and NMB Bank that issued multicurrency green bonds last year both of which were oversubscribed
Dar es Salaam. The first water infrastructure green revenue bond to be issued by a government institution will go live this month as public organisations seek new ways of raising development funds so as to reduce pressure on the Treasury.
Tanga Urban Water Supply and Sanitation Authority (Tanga Uwasa) is issuing a bond later this month as it seeks to raise Sh53.12 billion to finance water development projects in the region.
However, financial experts are of the view that green bonds should be adopted cautiously by the government. They say there should be proper planning and that a credit rating must be issued by reputable agencies.
Last year, Tanzania’s two largest commercial lenders, CRDB Bank and NMB Bank, issued multicurrency green bonds, but both were oversubscribed.
Speaking to The Citizen on Monday, January 29, the Tanga Uwasa managing director, Mr Geofrey Hilly, said they have already obtained all the approvals from the government and the official launch is expected to take place this month. He did not specify the date.
Actual trading would start three weeks after the launch.
Mr Hilly said the Sh53.12 billion to be raised through the bond would be spent purposely on implementing water infrastructure and expanding distribution to districts, especially Mkinga, where the supply of vital liquid is critical.
"We decided to come up with the idea of entering into a water infrastructure bond to speed up access to the vital liquid. The government has many priorities and insufficient funds; we have already done a market survey with investors, and they have shown their readiness for this bond,” he said.
He exuded confidence that the bond would be oversubscribed but noted that they would only collect the proposed amount.
The fund targeted increasing the supply of water to 60 million litres per day from 45 million litres and changing 10,000 water metres to prepaid metres.
Speaking last week in Arusha at an event organised by Mzumbe University, the commissioner for financial sector development in the ministry of Finance Dr Charles Mwamwaja, said that Tanga Uwasa’s bond will be the first of its kind in Sub-Saharan Africa.
Dr Mwamwaja added that there is a significant shift, with statistics showing that more than 80 percent of individuals purchasing such bonds are ordinary citizens. “If Tanga Uwasa, a very small water utility in the Tanga region, is capable of issuing an instrument worth more than Sh50 billion, why can't other institutions, like universities, succeed with the investments they have made?"
Reflecting on his recent presentation in the United Arab Emirates (UAE), he learned that the challenges facing developing countries include a lack of understanding of how to effectively channel funds. “There is a need to issue bonds that attract investor interest.”
"Furthermore, if any public institution decides to issue green bonds, the ministry will provide all the support. So the well-known scapegoat that goes ‘we have asked for funds, they have not brought it’, has no place in the current dispensation.”
A banking and finance lecturer from the University of Dar es Salaam (UDSM), Dr Tobias Swai, told The Citizen on Tuesday that the recent green bonds performed well and were oversubscribed, indicating that investors have an appetite for such investment avenues.
However, he cautioned that companies should enhance governance to control defaults and prevent others from seizing opportunities.
Dr Swai emphasised that the government cannot implement everything, and if individuals are willing to invest in various development projects, public institutions should leverage such opportunities.
He added; “Importantly, the funds acquired should be directed towards the targeted projects and not spent otherwise, green bonds can lead to defaults. We haven't heard of any so far, which increases confidence in investors who have already demonstrated a strong appetite.”
On the other hand, independent financial market expert Mr Christopher Makombe said green revenue bonds, such as the one to be issued by Tanga Uwasa, are issued to fund public projects and investors are repaid from the income created by those projects.
He expressed optimism about the bond issuance, considering it a positive step that offers alternative avenues for funding projects that might have faced challenges in raising capital through conventional financial markets.
Such projects, once completed and starting to generate income, will have a positive contribution to the country's GDP and at that time, investors will receive returns in terms of interest income.
“One word of caution. It is important to emphasise the need for proper planning, such as revenue projections for the said projects and responsible management of the funds to be raised from the bond,” he said.
In addition, he said, there should be credit ratings issued by reputable agencies on the rankings of such bonds to be issued. “These measures will help in minimising the risk of default in interest and principal,” he added.
