On the corner of Suva’s Gordon St and Thurston Rd, Fijian Holdings’ new office complex is under construction. To the naked eye, it’s just a typical building.
But it’s more than bricks and mortar — it’s also emblematic of the private sector-led investment which is a crucial foundation for jobs and people’s incomes, laying the building blocks for a stronger economy.
Financing decisions are at the heart of such massive expenditure. Partly to pay for its new office construction, Fijian Holdings Ltd, or FHL, recently issued Fiji’s first wholesale corporate bond under new regulations. With this, at the same time as funding the build, FHL’s move also heralded a new era for Fiji’s financial market.
Still for some, it may be worth asking, why does Fiji need an active corporate bond market?
The answer is: Just like foundations are critical for strong and resilient buildings, a robust, diversified, and modern financial sector is critical for financial stability and is fundamental to creating prosperity for all Fijians.
A cornerstone of this can be a deep and resilient capital market, including a market for corporate bonds. Corporate bonds enable companies to raise finance to fund their plans, and investors to seek quality returns.
Wholesale corporate bonds can only be bought by certain sophisticated investors. For instance: If a company needs to raise money to build a new chain of hotels, or develop housing apartments, or invest in building a bigger warehouse, it could issue a corporate bond.
By providing funds for new ventures like these, corporate bonds can help create jobs and spur economic growth. And it’s not just jobs for concierges, maintenance workers, or forklift operators. It has a multiplier impact across different value chains of industries.
At the same time, while few Fijians directly put their money into financial markets, most Fijians in formal employment contribute to superannuation and managed funds. The professionals who manage these critical funds for retirement are also looking for good ways to protect and grow pension pots.
Corporate bonds can be good investments for them, helping to underpin peoples’ long-term financial well-being. Better funded retirements mean more money to spend and invest: Another foundation of more economic growth.
That’s why there’s so much to celebrate about FHL’s recent $F30 million wholesale corporate bond issue. It’s the first under new regulations introduced by the Reserve Bank of Fiji (RBF) and the South Pacific Stock Exchange (SPX) with support from International Finance Corporation (IFC), a member of the World Bank Group.
It is clear Fijian investors can see the attraction of diversifying the source of funds for these new investments. In a market where there are often very few players with big money to deploy, the FHL wholesale corporate bond listing attracted 11 different investors.
There’s more good news. Once an active wholesale corporate bond market is up and running — potentially with more issuances soon — it can serve as a basis for more complex financial products such as securitisations.
I’m happy to point out that these crucial reforms are being undertaken in countries across the Pacific where IFC is working with relevant authorities and financial institutions to deepen financial markets. Fiji’s capital market is at a nascent stage.
Pricing of financial instruments like corporate bonds is always a lively discussion topic. But an enabling environment for companies to issue a wholesale corporate bond is a great start.
This development is also important because it is crucial for Fiji to diversify its economy and unlock new sources of growth beyond tourism, strengthening economic and climate resilience, leveraging its potential as an economic hub in the Pacific region and creating inclusive job opportunities.
We outlined this, and more, in our Country Private Sector Diagnostic, or CPSD, a flagship report by IFC and the World Bank. It emphasises a private sector-led recovery and growth, ensuring mobilisation of private sector financing and instruments like corporate bonds that can be a catalyst to raising funds.
While Fiji is located far from much of the rest of the world, the nation is not immune to the multiple crises around our planet and the deteriorating global economic outlook. And Fiji remains on the frontline of harmful climate change, with much to be done to both adapt and mitigate its impacts.
Access to finance is an important part of mitigating the impacts of crises, and it’s a key pillar of IFC’s broader work to modernise the financial market in Fiji. We also recently helped the RBF upgrade key elements of Fiji’s payment system infrastructure to make the switch to digital systems.
This can help improve the investment climate, ushering out the use of paper records and manual systems, reducing the costs and risks associated with cash, and progressively eliminating the use of cheques, while speeding up money transfers.
Our crucial work on wholesale corporate bonds and payment system infrastructure was supported by the governments of Australia and New Zealand. Fijians have seen what contribution bonds can make to nation building.
Indeed, Fiji is a global innovator in this space as the first emerging market to issue a sovereign green bond, raising $F100 million in 2017. Around the world there is now a huge market for green, social and sustainability bonds.
These are also a big potential opportunity for Fiji. Updates made to the regulatory framework can contribute to the growth of this market here. Who knows if Fiji might see a green wholesale corporate bond soon?
For now, we don’t expect a rush to join FHL’s wholesale corporate bonds on the SPX, but we do know a few companies are considering offerings. At the end of the day, the time has to be right.
With the first listing, FHL has set an important precedent, showing there is a solid foundation. We can be confident there is a framework that works for companies, investors and the broader Fijian economy. Let’s build on it.
• PARAMITA DASGUPTA is the manager East Asia and Pacific, IFC Regional Advisory Services – Creating Markets. JUDITH GREEN is the IFC country manager for Australia, New Zealand, Papua New Guinea and the Pacific Islands. The views expressed in this article are the authors’ and not necessarily of this newspaper.
