Investors in scramble to buy $1,5bn of SA bonds

Treasury says oversubscribed sale signals investor confidence in the government’s economic policies

SA HAS sold $1,5bn of 12-year international bonds in a deal that was twice oversubscribed, underlining investor confidence in the government’s economic policies, the Treasury said yesterday.

The sale came at a significantly lower cost than the sovereign debt of cash-strapped southern European countries.

The bond was priced to yield 4,66 %, which is the interest payment that the bondholders receive between when the bond is issued and when it matures.

That represents a spread of 270 basis points over US Treasuries and compares favourably with comparable spreads for Spanish debt, which stand at 372, Italian debt at 531, and Irish debt at 636 basis points.

“The success of the transaction reflects investor confidence in SA … amid concerns about economic developments out of Europe,” the Treasury said.

“The government also sees the success of the transaction as an expression of confidence in the country’s stable political environment, sound macroeconomic policy framework and prudent fiscal management.”

Moody’s changed the outlook on its credit rating for SA to negative from stable last November, largely because of perceptions of rising political risk.

The agency said populist pressure and tension within the ruling African National Congress, and between it and its alliance partners, could undermine the Treasury’s commitment to low budget deficits and debt targets.

Thuto Shomang, head of asset and liability management at the Treasury, said yesterday the money raised by the bond sale should be used to meet the country’s foreign currency commitments — through repaying or refinancing existing debt. SA has a $1bn issue maturing on April 24 this year. Early last year it issued $750m of a 2041 bond.

Mr Shomang said the new bond was aimed at “pre-funding” a bond issue planned for the 2012-13 fiscal year, which begins in March. The issue was launched ahead of time to take advantage of good market conditions, he said.

“Investors are back and we have seen other emerging markets issuing so far this year.”

Mexico, the Philippines and Indonesia have all tapped international markets since the year began.

SA’s bond is bigger than the R7,66bn of foreign issues that the Treasury had planned for the fiscal year 2012-13.

“We felt the bond needed to be a benchmark for liquidity in trading purposes, to accommodate a diverse investor group, and allow for a small allocation to hedge funds,” Mr Shomang said.

Brait economist Colen Garrow said yesterday that the favourable pricing for the bond was good news, but it was important for SA to keep in check its ratios of debt to gross domestic product (GDP). The Treasury has said the ratio would rise to 41,1% of GDP in the coming fiscal year, up from 39,3% in 2011-12.

The Treasury forecasts a slight increase, to 42,2% in 2013-14 and 42,4% in 2014-15.

The country’s ratio of foreign debt as a portion of total debt is set to decline to 7,8% next year, from 8,7% this year, and decline further to 6,8% in 2013-14 and 6,1% in 2014-15.

Moody’s Investors Service has given SA’s foreign currency debt an A3 rating, with a negative outlook, while Standard & Poor’s rates South African debt BBB+, with a stable outlook.


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