How do you evaluate the market for bonds in Mauritius?

Presently, there are 21 bonds listed on the stock exchange and several other bonds that were issued via private placements to insurance companies, pension funds, asset managers and banks. It is a new trend of alternative financing which corporates are tapping into in order to restructure their balance sheets, to have access to a new market with more competitive rates (fixed or floating) and to have the flexibility of having bullet re- payments in case of project financing and other repayment options that enhance their cash flows.

Mauritius debt capital markets could be more active if investors could switch from the “hold to maturity” mindset to a “trading” strategy. Investors could capitalize their gains immediately and look for other investment opportunities, the latter creating a more dynamic market. There is a lot of demand for investable assets at the moment with the excess of liquidity prevailing on the market. Initially, we need to fulfill this demand for assets following which we can create a more dynamic secondary markets for government and corporate bonds.

Why would someone invest in corporate bonds?

Investors, whether they are small or big, are looking for investment opportunities. We are in a cycle of low interest rates and everyone is looking for better yields. Corporate bonds offer this opportunity. Listed bonds offer the opportunity to disinvest without losing interest as is the case for fixed deposit although you run some market risk.

However, I think institutional investors like banks, insurance companies, pension funds and asset managers are already conducting the financial analysis of issuers while also taking into consideration the future path of interest rates locally and in the foreign currency. Therefore, they can make more calculated trading decisions. This is very common in the international markets. Debt markets are not dissimilar to equity markets, it’s just that the mindset needs to change.

As previously stated, investing in corporate bonds could result in higher yields as compared to the normal fixed deposits offered by banks or even government bonds. The reason being that banks increasingly have to take into consideration the various operational and regulatory costs nowadays.

How do you evaluate the business outlook in Mauritius at present and what are the opportunities in the treasury and capital markets?

Mauritius needs structural reform in order to achieve the high income economy status. We can’t rely mainly on infrastructure spending for our future growth. There are clear opportunities in financial markets for Mauritius to create a niche for itself. Yes, the local market is small and lacks depth; but the expertise is available to make it more dynamic. Getting investors to shift their mindset from a “hold to maturity” into a “trading” strategy will definitely help to create liquidity in the market as well as bridge the gap between the demand and the supply of investable instruments.

The big story for me, though, is the new Double Taxation Avoidance Agreement between India and Mauritius with the 7.5% withholding tax on interest on debt instruments. There are a number of debt funds focusing on India and Asia that are tempted to move to Mauritius. With the excess foreign currency liquidity in Mauritius, we can be a major player in Indian debt instruments.

This also opens the way for the Stock Exchange of Mauritius to approach Indian conglomerates to list their bonds in Mauritius, for example Masala Bonds. So, definitely the financial markets in Mauritius has the potential to grow both domestically and regionally.

How does AfrAsia help?

AfrAsia provides tailored and comprehensive strategic advice, capital raising and risk management expertise to Corporates. Given that we also offer Private Banking & Wealth Management solutions, we can bridge the gap between investors and issuers of bonds. We operate an integrated model whereby our different departments, so Treasury & Debt Capital Markets, Corporate and Wealth Management would work together bridge the gap between issuers of bonds and investors.

*Parikshat Tulsidas, Senior Executive - Treasury & Markets at AfrAsia Bank