Foreigners buying more of SA’S bonds

FOREIGN investment in South African government bonds has more than doubled to 29.2 percent of total purchases between 2008 and this year, according to the Treasury’s first annual debt management report released this week.

Mamokete Lijane, a fixed income analyst at Absa Capital, said South Africa along with many other emerging markets had provided high returns compared with the yields on offer in advanced economies in recent years. “Investment traditionally placed in the world’s major economies has found its way to alternative destinations,” Lijane said.

Because the debt is randdenominated there is no currency risk attached to these liabilities for the government.

The report notes that foreign currency debt remained below 10 percent of the government’s total debt, “apart from a brief period in September 2011, when it increased to 10.27 percent due to a decline in the exchange value of the rand against major international currencies”.

At the end of March, foreign currency debt made up 9.88 percent of total debt – “well below the strategic risk guideline of between 20 percent and 25 per cent”. While this allows the government to issue more debt in global markets, “exchange rate volatility remains a key risk factor”, the report says.

The government has marginally increased the average debt-to-maturity of its loans from 10.30 years to 10.62 years.

According to the report, activity in South Africa’s secondary market in bonds compares favourably with other international markets.

“The World Federation of Exchanges ranked the JSE third by market turnover in the 2011 calendar year, contributing $2.9 trillion (R24 trillion) or 9 percent to total global turnover of $33 trillion.”

The Treasury said the report, which covers the 2011/12 year, was aimed at both domestic and foreign investors – “and for all South Africans interested in how the government is handling state debt costs, with an eye on both the present and the future”.

It describes the scope of the government’s debt portfolio and the range of instruments that South Africa uses to meet its borrowing requirements.

The report got the thumbs up from economists.

Dawie Roodt, the chief economist at the Efficient Group, described the document as “excellent” and said it showed the government was “managing the budget very well, including its relationship with investors”.

Lijane said the report “augmented disclosures in the Budget released in February, and the medium-term budget policy statement, in October”.

However, she described information in the report as “noteworthy” and added that the document provided a clear understanding of how the market operated. The government should block takeovers by foreign companies, such as Walmart’s purchase of a controlling stake in Massmart Holdings, that did not boost local skills, Cosatu said yesterday. Mergers should be avoided unless there was evidence the foreign company would bring in improved technology, the trade union federation, part of an alliance with the ruling ANC, said in a report delivered at its 11th national congress in Midrand. Cosatu said that “the focus should be on creation of national champions”. The merger between Walmart and Massmart was a “good example where competition issues prevailed over public interest issues”. Cosatu has also urged the ANC to impose currency controls, export restrictions and increase state control in industries such as mining to help make the country’s economy more self-sufficient. – Bloomberg