|
In its annual report for 2003, the Central Bank of Malta reports that net issues of long-term debt securities increased to Lm121.1 million over 2003, up some 155 per cent from 2002’s Lm47.5 million, while the Central Bank reports a substantial rise in Government issues whereas net corporate issues declined.
The increase in Government long-term borrowing followed the deterioration in its fiscal position, while the reduction in private sector issues may be attributable to the slowdown in economic activity. Overall, demand for debt securities was strong in 2003 as falling bank deposit rates induced portfolio shifts towards bonds.
Government resorted to the capital market for financing in February, July and November, issuing five different stocks with a combined value of Lm148.8 million. Since Lm48.9 million worth of stocks matured during the course of the year, net issues of Government stocks in the primary market amounted to Lm99.9 million, whereas the Government had made no net issues in the market in 2002.
Terms to maturity ranged between seven and 20 years, whereas coupon rates offered ranged from 4.8 per cent to 5.9 per cent. Households purchased just under half of the total amount issued while collective investment schemes and insurance companies accounted for most of the rest.
In contrast, banks took up less than 10 per cent. As a result, the non-bank sector overtook the banking sector as the largest holder of long-term Government securities. Net corporate bond issues amounted to Lm21.2 million, down from Lm47.5 million in the previous year. Four firms, two of which operate in the tourism industry, issued bonds with terms to maturity of between five and ten years and coupon rates ranging from 5.75 per cent to 6.8 per cent. Response from investors was strong and all issuing companies exercised their over-allotment option and increased bond offerings. These bonds were subsequently listed on the Malta Stock Exchange (MSE).
Following a steep decline in 2002, turnover in the secondary market for Government bonds recovered slightly to Lm48.3 million. The Bank’s involvement in the secondary market was minimal, so that most deals were between other investors. Trading was not widely spread across securities, with investors preferring the longer end of the market. Thus, bonds having a term to maturity of ten years or more accounted for over half of the total volume. As regards the secondary market for corporate bonds, turnover remained largely unchanged at Lm10.2 million, despite the increase in the number of listed bonds referred to earlier. Turnover was spread quite evenly across a broad range of securities.
Yields on Government bonds traded in the secondary market continued to decline, as developments in the money market were slowly transmitted to the capital market. Strong demand drove Government bond prices higher, lowering yields. The benchmark rate for the 10-year bond declined by 77 basis points to 4.66 per cent. Yields stabilised in the latter months of the year, suggesting that market participants were not envisaging further cuts in domestic interest rates. Yields on corporate bonds traded in the secondary market ended the year generally lower.
Turnover in the equity market fell to Lm15.2 million, from Lm20.5 million in the previous year, with trading mainly concentrated in the largest three equities listed on the Exchange.
The MSE share index started to recover towards the end of last year in contrast with the drops recorded in recent years. This increased by 13.6 per cent to 2,125.8 in 2003. Gains were not evenly spread, however, and some equity prices fell.
|
