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Ramaphosa passes key test as SA Eurobond sale is 1.7 times oversubscribed

JOHANNESBURG — Faith in South Africa is starting to return as illustrated by the country’s first Eurobond sale since September last year. Treasury said that it managed to raise $2bn from notes maturing in 2030 and 2048 and that its bond sale was 1.7 times oversubscribed. Demand stemmed from major financial centres in the United States, Europe, the United Kingdom, Middle East and Asia. The proceeds will be used to finance government’s foreign currency commitments. The over-arching theme here is that global investors have faith in Team Ramaphosa. South Africa is increasingly also being viewed as a safer haven among its emerging market peers, some of whom (like Russia and Argentina) have been struggling of late.  – Gareth van Zyl

By Colleen Goko

(Bloomberg) — South Africa sold its first Eurobond under new President Cyril Ramaphosa, as investors weighed progress in fiscal reforms against a deteriorating backdrop for emerging-market debt.

Africa’s most industrialized economy raised $2 billion from notes maturing in 2030 and 2048 priced at 5.875 percent and 6.3 percent respectively, the National Treasury said in an emailed statement. Investors placed orders for 1.7 times that amount, it said.

“The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management.” the Treasury said.

President Cyril Ramaphosa during dry run at the Parliament precinct ahead of the 2018 State of the Nation Address in Cape Town.

South Africa’s rand has gained about 15 percent since mid-November, the most globally, as Ramaphosa, then deputy president and a former businessman and lawyer, maneuvered to succeed Jacob Zuma as president. Standard Chartered Plc and Goldman Sachs Group Inc., among others, have recently recommended long positions in South African assets as the new administration moved to curb the budget deficit, cut debt and stimulate growth.

Deutsche Bank AG, Nedbank Group Ltd., JPMorgan Chase & Co., FirstRand Ltd.’s Rand Merchant Bank and Standard Bank Group Ltd. managed Tuesday’s deal.


As emerging-market assets tumble, South Africa sells Eurobonds

By Colleen Goko

(Bloomberg) — South Africa offered a premium for selling Eurobonds just as investors are fleeing emerging-market assets. That it got a sale away at all is evidence of investors’ faith in the country’s new leadership, according to Manulife Asset Management Ltd. and Rand Merchant Bank.

Africa’s most industrialized economy raised $2 billion from notes maturing in 2030 and 2048, and priced at 5.875 percent and 6.3 percent respectively, the National Treasury said in an emailed statement. Investors placed orders for 1.7 times that amount, it said. In comparison, Ghana’s $2 billion Eurobond sale last week attracted bids for four times the amount.

Two hundred South African Rand notes sit on top of American fifty dollar notes in this arranged photograph in London. Photographer: Jason Alden/Bloomberg

The sale was seen as a test for President Cyril Ramaphosa’s new administration, which has pledged to stimulate growth, tackle corruption and stabilize the fiscus. But it came as emerging-market currencies had their worst day in more than a year as U.S. rates climbed and the dollar strengthened. A surge in issuance by lower-rated sovereigns including Angola, Argentina and Ghana has also dampened demand for riskier debt.

That prompted investors including Fidelity International and Vontobel Asset Management to say that the market is now all but closed for high-yield issuers.

“Unfortunately, the macro environment didn’t help,” said Michelle Wohlberg, a fixed-income trader at Johannesburg-based Rand Merchant Bank, a unit of FirstRand Ltd. With “We saw offshore investors reluctant to get overly involved. So a successful auction, but not as successful as it possibly could have been if the macro environment were supportive.”

South Africa’s rand has gained about 15 percent since mid-November, the most globally, as Ramaphosa, then deputy president and a former businessman and lawyer, maneuvered to succeed Jacob Zuma as president. Goldman Sachs Group Inc. and HSBC Holdings Plc, among others, have recently recommended long positions in South African assets as the new administration moved to curb the budget deficit, cut debt and overhaul cash-strapped state-owned companies.

‘Investor Confidence’

“The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management,” the National Treasury said in an emailed statement.

The 12-year notes priced at a spread of 280.5 basis points above U.S. Treasuries and the 30-year notes at 310.1 points. That compares with spreads of 260.5 for 10-year notes and 283.7 for 30-year securities at South Africa’s previous sale of Eurobonds last year.

South Africa’s foreign-currency debt is rated sub-investment by S&P Global Ratings and Fitch Ratings, with Moody’s assessing it at the lowest investment level. Deutsche Bank AG, Nedbank Group Ltd., JPMorgan Chase & Co., FirstRand Ltd.’s Rand Merchant Bank and Standard Bank Group Ltd. managed Tuesday’s deal.

“On the whole, the Treasury should feel comfortable about how the placement went,” said Richard Segal, a senior analyst at Manulife Asset Management Ltd. in London.


Statement from National Treasury:

On 15 May 2018, the Republic of South Africa successfully placed US$2 billion in notes maturing in 2030 (12-year) and 2048 (30-year) in the international capital markets through an intra-day execution.

The breakdown of the total issuance amount consisted of US$1.4 billion on the 12-year tranche and US$600 million on the 30-year tranche.

The 12-year bond priced at a coupon rate of 5.875 per cent (re-offer price 99.992 per cent) which represents a spread of 280.5 basis points above the 10-year US Treasury benchmark bond. The 30-year bond priced at a coupon rate of 6.300 per cent (re-offer price 99.991 per cent) which represents a spread of 310.1 basis points above the 30-year US Treasury benchmark bond.

The transaction was more than 1.7 times oversubscribed in aggregate with investor demand from across all the major financial centres in the United States, Europe, the United Kingdom, Middle East and Asia.

The 2018 Budget Review specified an amount of US$9 billion to be raised in the international capital markets as part of South Africa’s annual borrowing requirement over the medium term.

The proceeds from the bond issuance will be used to finance government’s foreign currency commitments.

The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management.

The National Treasury mandated Deutsche Bank/Nedbank(consortium), J.P. Morgan, Rand Merchant Bank and Standard Bank as Joint Bookrunners. The appointment included each bank’s BEE partners, namely RHO Capital and Pamoja Capital, Dew Partners, Basis Points Capital, and Africa Rising Capital respectively.

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