SA back on the borrowing trail


South Africa seized the moment for its return to the international debt market after an absence of two years, finding a window between a failed bid to remove the country’s leader and the prospect of a ratings downgrade.

The Treasury sold a $1.25 billion (R18.68bn) 10-year bond with a coupon of 4.875 percent, 335 basis points over US treasuries, it said in a statement on Friday.

The last dollar sale was a 2044 bond issued at 220 basis points above similar maturity US bonds, which has since widened to 295 basis points, data compiled by Bloomberg show.

The latest deal was arranged two days after ANC MPs quashed an attempt to impeach President Jacob Zuma and in the same week Standard & Poor’s (S&P), which may cut the country’s credit to junk, lowered its forecast for South African growth.

While that sounds like a difficult time to approach investors, things could yet get worse, according to Abri Du Plessis at Cape Town-based Gryphon Asset Management.

“The sooner you do it, the better,” said Du Plessis, who helps manage $236 million in funds and is not looking to add any South African debt to his portfolios. “Things can go a bit more downhill from here.

“Yes, it’s an unfortunate day, just after an announcement like S&P’s and a week like we’ve had, but on the other hand, economic fundamentals, especially, can just worsen from here.”

The cost of insuring South Africa’s five-year debt against default and the premium investors demand to hold the nation’s dollar bonds over treasuries climbed last week as politics combined with the renewed ratings concerns to unsettle investors.

After the Constitutional Court ruled that the president broke the law when he refused to pay back taxpayer money used to upgrade his private home, opposition parties led a failed charge to impeach the president.

S&P on Wednesday cut its estimate of the nation’s growth rate in half and said it was worried that increasing political tension would divert the government’s attention from the need to reverse slowing economic growth, the primary pressure on the rating.

The company, due to publish a review of South Africa in June, ranks the country BBB-, one level above junk status.

The Treasury had planned an international bond sale before the end of last month, but said it could delay the issue if conditions did not meet its requirements.

“What we look for is stable market conditions, with less volatility and noise, conditions characterised by stable indicative pricing observed over a period of time,” Tshepiso Moahloli, its chief director of liability management, said in response to questions.

After falling 25 percent last year, the rand has gained 3 percent this year as emerging market currencies rallied to their best month on record last month. The MSCI emerging markets stock index added 13 percent last month, the most since May 2009.

Yields on South Africa’s dollar bond due in September 2025 dropped to their lowest in five months last week.

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