Renee Bonorchis
BANKS pushed first-quarter corporate bond issuance in South Africa to the highest since 2011 as the four biggest lenders sought to refinance maturing securities and meet international rules on liquidity.
Standard Bank, Africa’s largest lender by assets, FirstRand and Nedbank each sold more than R5 billion of debt, while Barclays Africa raised in excess of R2bn. Their combined issuance rose to R22.2bn from R12.3bn in the first quarter of 2014, Standard Bank research shows.
Issuance by financial institutions accounted for 75 percent of total corporate bond sales of R29.7bn, it said.
“Several banks have indicated that there are significant funding plans for the year ahead,” said Mark le Roux, the head of fixed income investments at Coronation Asset Management, whose South African bond fund has outperformed its peers over five years. “2014 was an erratic year for funding given the turbulence in the market. We will see higher levels of issuance.”
The four banks have more than R40bn of bonds maturing this year and are expected to raise more than R50bn of debt, according to Standard Bank, even as loans and advances to customers differ little from 2014 levels.
Total corporate bond sales will probably rise by about 6 percent to R115.5bn, according to the lender.
Banks are doing more bond deals even after the August collapse of African Bank Investments made borrowing more expensive.
“It is costing more, but the effect should be somewhat diluted when pooled together with existing funding lines,” Le Roux said. “Banks use a variety of funding sources with different maturities to optimise their total cost.”
More debt
Banks were issuing more debt for reasons including “refinancing and lengthening portfolios, and to meet demand”, Sam Moss, FirstRand’s director of investor relations, said this week. FirstRand planned more bond sales this year, she said.
Barloworld, the southern African supplier for Caterpillar, the biggest construction and mining equipment maker, was one of the only large non-bank corporate bond issuers in the first quarter. It sold a R710 million bond in March that matures in 2022.
State-owned enterprises sold 18 percent less debt than a year earlier. Eskom raised R1.2bn in domestic debt capital markets, half the year-earlier figure.
“Corporate South Africa seems to be very nervous about undertaking substantial capital expenditure programmes,” Alexi Contogiannis, a primary market debt executive at Standard Bank, said. – Bloomberg