Forex Bonds Floated for DiasporaAugust 18th, 2011
The Ethiopian diaspora are now being enticed to purchase bonds which are floated by the federal government for the financing of the Grand Renaissance Dam under construction on Abay River. The bonds will be available for purchase in USD, Euro and Pound Sterling currency.
All Ethiopian nationals and foreign nationals of Ethiopian origin living and working outside Ethiopia can now buy bonds as small as 50 dollars/ Euros/ pounds to support the financing of the dam. This is being introduced at a time when the climate of support from the nation for the Dam is high; the nation is taking on the aspiration of covering the dam’s 4.8 billion dollar costs on its own. Bonds worth 100, 300, 500, 1000, 3000, 5000 and 10,000 worth bonds in the above three currencies are also available for purchase.
The new bonds, dubbed as Grand Ethiopian Renaissance Dam Bonds, will replace the millennium bond of Ethiopian Electric Power Corporation (EEPCo) that was previously offered abroad, to the Ethiopian diaspora.
"The bonds have been circulated abroad. They are already available for purchase in Ethiopian embassies, consulates and missions’ offices," Issayas Bahire, president of the Development Bank of Ethiopia (DBE), told Capital on Friday.
Directed by the National Coordination Council for the construction of the dam headed by Hailemariam Desalegn, Deputy Prime Minister and Minister of Foreign Affairs, the financial sector regulator National Bank of Ethiopia (NBE) has issued a new document ‘The Grand Renaissance Dam Bond Guidelines’ detailing the bond’s sale, yield and other terms.
According to the guidelines, the Ministry of Finance and Economic Development (MoFED) and EEPCo are respectively offering bonds that can be purchased in birr and in forex.
The bond offered in forex will be sold by Commercial Bank of Ethiopia (CBE) through its branches, embassies, consulates and other representative offices.
EEPCo is floating forex bonds which CBE will sell on its behalf.
"The federal government has awarded a full guarantee to the bond," says the NBE guidelines.
The bond has two maturity date offers; buyers can acquire bonds that will mature in five years or between five and ten years. Free for choice, buyers can buy either bonds with interest or non interest bonds.
According to the guidelines, once one buys bonds, yields will be calculated from day one and they shall be paid at the end of every six month period to buyers in a currency he or she bought the bonds with.
Yield, which means the interest buyers can collect from the purchased bonds, are calculated as per the period of maturity the bonds have. If one bought a bond of the five year bracket, the yield one will receive biannually will be square with the London Interbank Offered Rate (LIBOR) plus 1.25 percent of the total bond’s value.
LIBOR is a competitive rate daily set for interbank lending-banks borrowing and lending to each other using commercial paper. Repurchase agreements and similar instruments are usually benchmarked by the London monetary market.
The NBE guidelines state the following interest calculations for bond buyers. Bonds with a 6-7 year maturity date will be subject to LIBOR plus 1.5 percent; an 8-10 year old bond will be subject to LIBOR plus two percent interest rates.
To buy the bonds, Ethiopians or other nationalities of Ethiopian origin can simply go to any nearby Ethiopian embassy or consulate or mission offices. They can also send money to CBE using money transfers to the account CBE is currently advertizing.
Using SWIFT transfers, cash purchases are available to Diaspora who have foreign currency accounts. To encourage those who will use money transfers, CBE is covering the transfer fee. For example if you buy a 100 dollar bond and pay a 10 birr transfer fee to make the payment; CBE will issue you a bond worth 110 dollars. To accommodate such small transactions, bonds worth 5 and 10 dollars, Euros and Pounds are being printed.
Already in operation and receiving support across the board are purchases of bonds in birr that are also named Grand Ethiopian Renaissance Dam Bond.
CBE in Ethiopia, consulates and embassies abroad and upcoming offices to be named by DBE are all selling these bonds.
The Ministry of Finance and Economic Development will be the party indebted for the bonds, giving the bond sales guarantee from the federal government.
There are fourteen different bond values worth between 25 and 1 million birr, and one can buy as many bonds as they like.
There are two types of maturity dates offered for the bond; one for five years and the other for more than five years.
For a five year bond purchases, 5.5 percent of the bond’s value yield and for above five year bonds, 6 percent interest will be paid. This amount will be calculated for every month starting from the day of the bond purchase and will be paid every six months to the buyers.
State and private companies’ employees’ alone have so far raised close to 3 billion birr; as a one time grant of their monthly salary and bond purchase. Grants were later transferred to the purchase of bonds. Each employee will now own a bond worth his/her grant of one month salary and will receive yield every six months until the maturity date arrives and they get back the full principal amount.
Secondary market for bonds
The NBE guidelines say you can buy bonds on behalf of others or as a gift. You can also easily transfer it to another party; at the back of the bond itself is a space for such transfers to up to three people.
If you want to sell the bond, not only will you be able to do so but all banks operating in the country are by NBE’s regulation obliged to offer you a loan if you want to put it as collateral.
The Grand Ethiopian Renaissance Dam is currently under construction on the Abay (Blue Nile) River, about 40 km east of Sudan in the Benishangul-Gumuz Region of Ethiopia.
At 5,250 Mega Watts, the dam will be the largest hydroelectric power plant in Africa when completed, and the reservoir at 63 billion cubic meters will be one of the continent’s largest. --Capital