Equity market looking up as SOEs seek funds

SOUTH Africa’s equity and debt capital markets could be in for another bumper year, as stabilised state-owned enterprises (SOEs) seek funds and the JSE welcomes new listings.

The South African National Roads Agency (Sanral) issued nongovernment guaranteed debt for the first time in six years, with a R500-million private placement in the first quarter, said Conway Williams, head of listed credit at Futuregrowth Asset Management.

Eskom had raised R5-billion through a private placement, while the Land Bank issued R2-billion in listed debt, Williams said.

“There is quite a bit of positive sentiment that has built up in the market, following changes in the perception of governance at SOEs,” he said.

Total listed credit issuance amounted to R31-billion in the first quarter, which was 4% behind the first quarter of 2017 and driven largely by bank issuance.

Under President Cyril Ramaphosa, leadership has been stabilised at SOEs, while former finance minister Pravin Gordhan’s appointment as public enterprises minister in March has further reassured investors.

While Sanral’s nonguaranteed placement is noteworthy, it represents a fraction of the R466-billion of government guarantees in place for SOE debt, R38.9billion of which belongs to Sanral and R350-billion to Eskom.

Futuregrowth, SA’s largest specialist fixed-income manager, with R180-billion in assets, engaged extensively with the agency in 2017 over its governance structures and independence. This followed Futuregrowth’s decision to suspend lending to the country’s six largest SOEs in August 2016 over concerns relating to corporate governance. This move appears to have paid off.

Eskom, which had secured R20-billion in short-term credit via a syndication of local lenders, was not yet ready for a public bond auction, said Williams.

Pricing terms were unlikely to be favourable, considering lingering concerns over the utility’s liquidity challenges and the need for its turnaround strategy to take effect. S&P Global Ratings and Fitch Ratings downgraded Eskom’s bonds to junk earlier in 2018, even as the sovereign averted having its rand-denominated bonds junked by Moody’s Investors Service.