ASISA STEPS UP BOND MARKET INVESTIGATION

The Association for Savings & Investment SA (Asisa) is expanding a two-year project into listings on the corporate bond market following the R925-million default on corporate bonds by South Africa’s biggest unlisted company, First Strut.

Asisa senior policy adviser Adré Smit, who chairs the association’s standing committee on fixed income, says a work group was appointed two years ago to look at various aspects of the corporate bond market.

The process starts with the JSE’s listing requirements for corporate bonds, he says.

The Financial Services Board (FSB) is in charge of regulating the securities markets, including the bond market, Smit says. The JSE is the FSB’s “policeman”, and its responsibilities include setting standards for the listing of debt.

Asisa’s members are asset management and life assurance companies that invest in corporate bonds on behalf of their clients. As such, Asisa wants to be sure that the listing requirements provide suitable protection.

Smit says the issues that the work group has been looking into for the past two years include:

The processes that are followed before and after a listing;

Standardising the terminology used in the corporate bond market; and

The covenants, or conditions, that apply when a bond is issued – for example, that a company may not borrow more than a certain amount of its equity.

He says the conditions should not be so onerous that they push up the costs of borrowing on the bond market.

The advantage of the bond market for borrowers is that they can borrow with fewer onerous conditions and/or at lower interest rates than would be the case if they approached the banks.

The work group has to consider carefully how to strike the right balance between protection and costs, Smit says.

Although the First Strut default adds urgency to the work group’s investigation, it should not result in a knee-jerk over-reaction, he says.