Authorities look into stimulating growth in Tunisia’s bond market

Tunisia’s bond market is going strong, with both the government and local financial institutions – and leasing companies in particular – regularly issuing debt. Trading levels, however, are very low, though the operators of the Tunis Stock Exchange (Bourse des Valeurs Mobilières de Tunis, BVMT) are looking at ways to increase transactions. In addition, plans under way to allow corporates to issue sukuk (Islamic bonds) could also help spur the market’s development. The government, which returned to international debt markets in 2015, is planning to issue an international sukuk of its own later this year.

Domestic Bond Market

The BVMT debt market lists both corporate- and government-issued bonds, the latter of which consist of Treasury bonds, short-term Treasury bonds and bonds issued under the country’s National Savings scheme. As regards government debt, 2014 saw the listing of TD2.07bn (€1.2bn) worth of Treasury bonds, bringing the outstanding listed amount to TD7.9bn (€3.6bn), up 2.4% year-on-year, and TD226m (€103.6m) of short-term Treasuries. Outstanding short-term debt stood at TD181m (€83m) at the end of 2014, rise of 10% year-on-year. The government issued TD959m (€439.8m) worth of national savings bonds over the year, 52% of which were acquired by banks and insurance firms.

According to the latest data available from the Financial Market Council (Conseil du Marché Financier, CMF), as of the end of 2014 there were 123 corporate bonds listed on the exchange, representing outstanding debt of TD1.95bn (€894.3m). The total value of corporate bonds issued in 2014, including private placements, reached TD478m (€219.2m), up 20% on 2013 figures. There were 20 new corporate bonds issued in 2015, up from 13 in 2014.

The financial sector dominates corporate debt issues even more heavily than it does the equity market, accounting for 94.8% of the total value of corporate bond emissions in 2014, with leasing and factoring firms accounting for as much as 62.9% of the total, and banks 31.9%.

Sovereign Bonds

In January 2015 the government issued sovereign debt on international markets without external guarantees for the first time since the revolution. The authorities sold the $1bn 10-year bond, at a yield of 5.875%. Demand was high despite the lack of financial backing from foreign governments, with the instrument more than four times oversubscribed. However, appetite for the debt fell following the June terrorist attacks and subsequent economic troubles, with the bond’s yield reaching 7.9% in December 2015. Some investors still regarded it as a bargain, with Aberdeen Asset Management in December describing the sell-off as a “knee-jerk reaction”, stating that it felt comfortable with the government’s ability to pay the debt and was seeking to increase its holdings of the instrument.

Islamic Debt

The government may soon issue more sovereign debt, in the form of sukuk. The authorities first announced plans to issue Islamic debt in February 2014, when Tunisia said it was looking to issue TD700m (€321m) in sukuk the following April or May. While the issue did not take place as planned, in October 2015 Slim Chaker, the Minister of Finance, told the media that the government now intends to issue TD1bn worth of sukuk (€458.6m) in 2016.

Meanwhile, the Ministry of Finance is reported to be working on new rules that would also allow for the issue of corporate Islamic debt. According to a Reuters report published in August, three local financial institutions – Islamic bank Zitouana and leasing firms Best Lease and El Wifack Leasing – were all considering issuing sharia-compliant bonds once the regulations were in place, with Best Lease quoted as planning to issue up to TD30m (€13.8m) worth of Islamic debt. The authorities’ move into Islamic finance is thought to be partly aimed at attracting more investment from the Gulf into the country.

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The Report: Tunisia 2016

Capital Markets chapter from The Report: Tunisia 2016

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