Eurobond issue ‘a sign of investor confidence’ in SA
The government says the successful issuing of $5bn (about R74bn) in what it said could be the biggest Eurobond sale in sub-Saharan Africa to date is an expression of investor confidence in SA.
The Treasury announced on Tuesday it was able to place $2bn in 2029 bonds as well as $3bn of securities that mature in 2049, increasing the offering from a planned $4bn after demand from prospective investors exceeded supply by almost three times.
In the budget tabled in February, the government said it would raise the equivalent of $2bn on international capital markets, while a further $2bn was outstanding from the 2018/2019 fiscal year.
While it may be a reflection of the global search for yield after loose monetary policy pushed yields in markets such as the eurozone further below zero, the demand for SA paper also comes despite a ballooning in government borrowing, which at the time of the February budget was running at about R1.2bn a day (excluding weekends).
The state recently announced plans for new borrowing to fund a higher than anticipated rescue plan for Eskom, whose debt of about R450bn has been cited by ratings agencies as among the biggest risks to the economy.
Finance minister Tito Mboweni’s medium-term budget policy statement in October may reveal a deterioration in SA’s fiscal position, taking into account the Reserve Bank’s prediction of a growth rate of just 0.6% in 2019.
In its statement on Tuesday, the Treasury said the 10-year bond, with a yield of 4.85%, represented a spread of 313 basis points above similar-maturity US treasury notes, while the 30year bond yield of 5.75% represents a premium of 359 basis points on similar treasuries.
The initial price talk was about 5.25% for the 10-year offering and 6.125% for the longer securities, Bloomberg reported. The issue was 2.71 times oversubscribed, with investor demand coming from across Europe, North America, Asia, South America, the Middle East and Africa.
Demand was supported by a mixture of fund managers, insurance and pension funds, financial institutions, hedge funds and others.
“The South African government sees the success of the transaction, believed to be the largest ever out of sub-Saharan Africa, as an expression of investor confidence in the country’s sound macroeconomic policy framework and prudent fiscal management,” the Treasury said.
It said it had mandated Citi, the Deutsche Bank-Nedbank consortium, Rand Merchant Bank and Standard Bank as joint book runners. The empowerment partners for the respective banks are Crede Capital Partners, Rho Capital, Theza Capital and Africa Rising Capital.
Earlier in September, the finance minister told delegates at a Banking Association SA conference that the government was borrowing more and more from banks.
Over the past four years, banks have increased their holdings of SA government securities more than 40% to about R410bn.
THE TREASURY ANNOUNCED ON TUESDAY IT WAS ABLE TO PLACE $2BN IN 2029 BONDS AS WELL AS $3BN OF SECURITIES THAT MATURE IN 2049