FMO issued its first Myanmar Kyat (MMK) linked note and another note linked to the Georgian Lari (GEL). The notes were sold to off-shore investors, i.e. investors outside Georgia and Myanmar. These transactions follow local currency issuances in Dominican Peso, Tajik Somoni, Georgian Lari, Brazilian Real and Costa Rican Colon earlier in the year. With repeat deals in local currency linked bonds FMO supports capital market development in frontier currencies. The Currency Exchange Fund (TCX) provided a hedge in both currencies to FMO.
By issuing the MMK linked bond and hedging the cash flows with TCX, FMO facilitates additional capacity at TCX for providing hedges in MMK to those lenders who do not have an appetite for currency risk. Myanmar has a nascent micro finance market and only recently micro finance institutions started borrowing funds in local currency from international lenders. The volatility of Myanmar’s currency makes lending in Myanmar Kyat (MMK) unattractive for these lenders. FMO is pursuing opportunities, including potential transactions in MMK, to increase its financing in Myanmar, in particular the micro finance sector.
In Georgia, a surge in demand for GEL financing, following new regulation to reduce the level of dollarization, i.e. financing in USD, lowered the available hedging capacity in GEL. Issuing bonds in GEL to investors outside Georgia alleviates constraints and is a necessary step for further market development.
The cash flows of the bonds are calculated in MMK and GEL respectively. Both settle in USD, have a maturity of 3 years and are issued under FMO’s Debt Issuance Program. The MMK bond was structured, arranged and distributed by ING with a fixed rate of 8.35% and a notional of MMK 20.4 billion (USD 15 million). The GEL linked note has a notional of GEL 43.7 million (USD 18 million), pays 7.35% coupon, and was structured arranged and distributed by Citibank. The bonds will be listed in Luxembourg.