The government’s 30-day Treasury bills (T-bills) worth Nu 1 billion was oversubscribed by Nu 210 million. It was sold at a discount rate of 3%.
The T-bills floated by the Royal Monetary Authority on government’s behalf for its cash management was allocated to the investors by the Royal Securities Exchange Board of Bhutan Limited (RSEBL) yesterday in Thimphu.
T-bills are a short-term maturity promissory notes issued by the government through the central bank to regulate the supply of money and raise funds to enhance government’s cash management through open market operations.
The Nu 1 billion worth T-bills was divided into 100,000 units at the face value of Nu 10,000 a unit.
There were three institutional investors: Bank of Bhutan Ltd (BoBL), Bhutan Development Bank Ltd (BDBL), and Tourism Council of Bhutan (TCB).
Of the three investors, BoBL bid for the full value of the T-bills, while BDBL and TCB bid for Nu 200 million and Nu 10 million. But it was allocated on pro rata basis, meaning proportionate allocation.
This means, BoBL got 82,645 units, BDBL 16,529 units and TCB 826 units.
Since T-bills are sold at a discount rate, upon their maturity which may range from one month to a year, there is no payment of an explicit interest. The yield in T-bills investment is the difference between the purchase price and their face value.
For instance, if an investor buys a T-bill whose face value is Nu 100 and sold at 5% discount rate, the investor will have to pay just Nu 95 while purchasing the bill. However, on the maturity date the central bank will pay Nu 100. The difference of Nu 5 is the yield acquired by the investor.
Therefore, RSEBL records imply that BoBL will receive more than Nu 2 million as yield when the Nu 1 billion T-bills mature on 29 March 2012.
Meanwhile, one of the deputy governors of RMA, Pushpalal Chhetri, said the recent auctioning of Nu 500 million worth T-bills based on the lowest discount rate bidder did not work. He said institutional investor like BoBL gets an edge over the rest as it can afford to quote the lowest. BoBL quoted a discount rate at 1.9% for the full value of the previous T – bills.
The governor said the fixation of the discount rate at 3% for the Nu 1 billion T-bills was to ensure that more institutional investors were able to participate.
The central bank floated its first T-bill in December 2009. Before that it used to float the RMA discount bills. RMA discount bills were introduced in 1993 floating 185 discount bills before switching to T-bills.