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East African stock market chief executives are considering a policy shift to allow them to issue debt instruments in hard currency to open competition with commercial banks over the issuance of foreign currency-denominated loans to companies largely involved in international trade.

The proposal, which regional central banks are still jittery to approve, seeks to allow companies to raise fresh capital from the capital markets by issuing bonds denominated in hard currency and particularly the US dollar.

The East African Stock Exchanges Association (EASEA) says this will cushion issuers and investors from massive exposure on local currency risks where foreign investors and companies dealing in international trade absorb exchange rate risks.

“For capital markets instruments I do believe that (issuance of capital markets instruments in hard currency) all of us in EASEA are discussing that and I’m sure we are even going to be discussing that in our technical committee of the African Securities Exchange Association (ASEA) of which I’m the vice-president. We have been discussing that but most countries are jittery, central banks are reluctant,” EASEA chairman Celestin Rwabukumba told The African.

“As far as we are concerned as EASEA it is a matter that central banks must approve. But the issue is most of our economies do not allow people to issue instruments in hard currency except governments which can issue Eurobonds. Banks are allowed to trade in hard currency, however, capital markets are not allowed which I find counterproductive actually,” added Mr Rwabukumba, who is also the vice-president of ASEA and chief executive of the Rwanda Stock Exchange (RSE).

Currently, debt and equity capital raising instruments on regional exchanges including bonds, initial public offerings (IPOs) and rights issues are offered in local currencies. The regional lobby group,EASEA, says discussions over the use of hard currency are currently at different levels.

“These discussions are at different levels. We as market people of exchanges,have realised that, by the way we should accommodate that market issue (use of hard currency). If one can get a loan from a commercial bank in hard currency why can’t we issue a bond in hard currency in the capital market?” Mr Rwabukumba asked. —The East African.

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