Sanral delays bond auction
Concerns over attracting investors after downgrade
THE South African National Roads Agency (Sanral) has delayed its return to the bond market amid concern that it would struggle to attract investors after the country’s sovereign credit ratings downgrades.
The agency had planned to approach the bond market next month but elected to postpone a debt issue following the sovereign’s downgrade to subinvestment grade by S&P Global Ratings and Fitch, it said.
The announcement comes as Transnet raised only R20-million of a planned R200-million on April 10 by tapping existing bonds.
Transnet raised R300-million last month by tapping existing issues, RMB global markets credit analyst Elena Ilkova said.
The Development Bank of Southern Africa and the Land Bank were among other stateowned enterprises that had successful private placements in the first quarter, she said.
The downgrade would have a significant effect on state-owned enterprises (SOEs), Futuregrowth Asset Management credit analyst Wafeeqah Mallick said.
“Many rely on government finances for capital injections and, in certain instances, benefit from explicit and implied support,” she said.
“The institutional weakening in many SOEs, coupled with the weakening ability of the sovereign to support them, may lead to further credit downgrades for weaker enterprises.
“Consequently, investors will demand a higher credit margin to compensate for these increased risks.”
Ilkova said Sanral was not the only issuer to postpone an issue following the cabinet reshuffle and credit ratings downgrades, with Barloworld and MTN among private issuers that had postponed listed debt auctions.
Three corporate bond auctions had been postponed following the cabinet reshuffle, Futuregrowth head of listed credit Conway Williams said.
This followed a very lively first quarter, with total issuance amounting to R35-billion in the bond market, compared with R17-billion issued in the first quarter of last year, he said.
Nearly R16-billion was issued by corporates last month alone.
“March is historically a good month for issuance, with Easter holiday interruptions making April a quieter period.”
Despite the downgrade, repeat, quality issuers would be supported by bond investors for short-term paper (between one and three years), he said.
The uncertainty in the market has impacted planned issuances. There are also certain practical issues around how the downgraded debt securities should be accounted for in portfolios, which has distracted investors.
Reluctance among South Africa corporates to invest in recent years meant balance sheets were relatively better positioned to withstand economic uncertainty.
Sanral finance chief Inge Mulder said the agency still had time to raise the R300-million it needed until March next year. This compared with the R600million a month it had previously required.
Bond auctions in this climate would make Sanral a bigger burden on the fiscus, Sanral spokesman Vusi Mona said.
Following two unsuccessful auctions earlier in the year, Sanral’s September 2016 bond auction was oversubscribed.
Sanral has about R38.9-billion in government-guaranteed debt. It secured R15.4-billion from the Treasury in February for the medium term, which it will use to maintain and upgrade the national road network.
The postponed bond auction was not expected to directly affect current projects. It could, however, expedite attempts to pursue Gauteng motorists for failure to pay e-toll bills.
Uncertainty about enforcement of collections of about R6.4-billion has been cited as a key risk.
Independent transport economist Andrew Marsay said the ratings downgrades and expected low growth would affect road maintenance and construction unless the state shifted priorities significantly. — TMG