SA sells $3bn of Eurobonds amid rising yields in US due to inflation

SA has raised $3bn (R43.7bn) in Eurobonds as part of its financing commitments outlined in the 2022 budget as yields for benchmark US Treasuries rise in response to quicker inflation.

The government sold $1.4bn (R20.4bn) of 10-year debt at 5.875% and $1.6bn (R23.3bn) of 30-year notes at 7.3%. That is 309 and 447 basis points above the 10-year and 30-year US Treasury benchmarks, respectively, the National Treasury said in a statement on Tuesday.

The order book was $7.1bn (R103bn), meaning the notes were oversubscribed by almost 2.4 times, with demand from the UK, US, Europe, Asia and Africa. Investors included fund managers, insurance and pension funds, hedge funds, banks and other financial institutions.

The good demand saw the final yields decline 37.5 basis points and 45 basis points from initial pricing on the 10- and 30year securities, respectively.

Inflation in the US reached 8.5% in March, the highest since December 1981 and is likely to prompt further interest rate hikes by the Federal Reserve. Last month, it raised its key federal funds rate from near zero to a range of 0.25%-0.5%, and is projecting at least six more rate increases this year.

“Given the volatility in the market over the period, the decision to raise the foreign currency was delayed in accessing the market in a more constructive issuance window,” the National Treasury said.

The proceeds will fund the government’s foreign currency commitments, which includes about R1bn a year in departmental spending, mainly on embassies, as well as paying interest on and redeeming existing foreign bonds.

The National Treasury mandated Absa Bank/HSBC, Deutsche Bank/Nedbank and Rand Merchant Bank as joint lead managers. The empowerment partners for the respective banks were Tysys Advisory, Nations Capital Advisors; Rho Capital; and THEZA Capital.

“The SA government views the success of the transaction as an expression of continued investor confidence in the country’s sound macroeconomic policy framework and prudent fiscal management,” the Treasury said.

SA last raised money in the Eurobond market in September 2019, when it sold $3bn of 2049 bonds, paying a coupon of 5.75%. Bloomberg reported. The yield on those bonds has since climbed to 7.05%, including a 24 basis-point jump on Monday, the biggest increase since April 2020, it added.

THE SA GOVERNMENT VIEWS THE SUCCESS OF THE TRANSACTION AS AN EXPRESSION OF CONFIDENCE FROM INVESTORS IN SA

Statement National Treasury