Basel III weighing on SA lenders

BARCLAYS Africa Group sold less than half its target in a bond auction as a wall of debt issuance by South African banks and the impending exit of its UK parent damped demand.

Barclays Africa offered R1.5billion of notes on Monday but raised only R642 million within price guidance, according to Deon Raju, the head of treasury at the lender. The debt was priced at a spread of 378 basis points more than the benchmark three-month Johannesburg Interbank Agreed Rate.

This compares with R2.15bn of private placements at a spread of 400 basis points during the second half of last year, he said.

South African banks have raised R17.1bn of debt this year, more than double the R7.8bn in the comparable period last year, to comply with new rules under the Basel III global reforms that require lenders to hold more liquid and long-term capital.

The pending sale of London-based Barclays’s remaining stake in Barclays Africa added to investor concern, according to Kagiso Asset Management.

Negative “There is a lot of bank paper being issued at the moment as banks prepare for Basel III,” said Gavin Wood, chief investment officer at Kagiso.

“The Barclays sell-down is in incremental negative and clearly Barclays Africa didn’t want to move much on pricing so issued less.”

Barclays said a year ago that it would sell down its stake in its South African unit as increased regulation in its home market made holding the asset more expensive.

Having sold more than 12 percent of Barclays Africa in May, the parent company now holds just over 50 percent. When presenting its full-year results last month, it did not say when or how it would sell more shares.

During the second half of last year the majority of Barclays Africa’s subordinated debt was raised via private placements, which may have “cannibalised appetite from a handful of larger accounts in terms of limits”, Raju said.

The crowded issuance calendar also weighed on demand, he said.