Local banks lend Namibian Govt N$6 billion to settle multibillion Eurobond debt

Earlier this year Namibia paid off a US$750 million Eurobond (approximately N$14.3 billion) of which N$750 million came from South African owned Absa Bank.

Absa chief representative officer Vivian Groenewald says Absa Corporate and Investment Banking jointly arranged and led a R1.5-billion facility for the government.

The other N$750 million came from Bank Windhoek.

“This milestone financing marks one of the first commercial local bank debt solutions of its kind, laying the foundation for deeper innovation and the continued development of Namibia’s domestic loan markets,” Groenewald says.

She says the agreement showed that governments could borrow domestically with better rates and less hard-currency exposure or risks.

Groenewald says the loan was given in South African rands (ZAR), taking advantage of the currency peg with Namibia.

“By raising the facility in ZAR – pegged to the Namibia dollar (NAD) – the government reduces its hard-currency exposure, enhances sovereign risk management, and strengthens fiscal stability while enabling greater participation in local-currency financing,” she says.

Minister of finance Ericah Shafudah says during the redemption in October the government was able to accumulate US$444 million (around N$8.4 billion) in the sinking fund towards the repayment.

However, there was a funding gap of about US$306 million (approximately N$5.9 billion) and the government invited local commercial banks to provide loans.

Standard Bank Namibia provided N$3 billion, FNB Namibia gave N$1.5 billion, and Bank Windhoek, in partnership with ABSA, contributed another N$1.5 billion towards the redemption.

This brings the total owed to local banks to about N$6 billion.

The US$750 million Eurobond was given in 2015 at a coupon rate of 5.25%.

Economist Omu Kakujaha-Matundu says borrowing the N$6 billion from local banks is a better option than defaulting on foreign debt.

“Such a default comes with serious implications such as renegotiating restructuring at higher interest rates/coupon rate. Possible downgrade by rating agencies and the loss of confidence of foreign investors who wish to invest in Namibia,” he says.

He says it proves that local institutions have confidence in the local economy and government financial prudence.

Another plus is that our government or the Namibian people will owe the debt to themselves.

“It means government debt will not be subjected to foreign currency fluctuations,” Kakujaha-Matundu says.

He says borrowing locally, however, also comes with its own drawbacks.

The main one is the crowding out effect.

“For Namibia it’s not a real concern, Namibia is awash with funds. So, such borrowing by the government won’t affect private sector borrowers,” Kakujaha-Matundu says.

He cautions that it should not become a habit as it would have a negative impact on the economy.

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