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Barloworld bond investors look beyond Russian-related tension

Barloworld bondholders are signalling less concern than equity investors over the South African company’s Siberian operation amid an exodus from the stock since Russia’s conflict with Ukraine escalated in March.

The bond maturing in October 2018 for the distributor of Caterpillar gear returned 4.2 percent since the beginning of March, the month Russia annexed Ukraine’s Crimean peninsula, data compiled by Bloomberg showed. That compared with a 6.3 percent decline for the shares in the period.

Barloworld Equipment has shared a partnership with Caterpillar since 1927. It generates 43 percent of its revenue from selling equipment to mining companies, including some based in Siberia. Photo: Supplied. Credit: Independent Newspapers

Bond investors were “looking through the short-term blips in Ukraine”, Mark Hodgson, an analyst at Avior Research, who has a hold recommendation on Barloworld’s stock, said on Thursday. “There is lower risk for bondholders.”

The crisis in Ukraine has prompted sanctions on Russia by the US and the EU, with additional penalties threatened if the nation continues its support for the separatists.

Barloworld, which said it got about 6.5 percent of its revenue from Russia in the six months to March, is also battling a decline in South African new vehicle sales, another of the Johannesburg-based company’s business lines.

Barloworld said it generated 43 percent of its revenue from selling equipment to mining companies, including some based in Siberia. It also owns motor dealerships in South Africa, where it competes with Imperial Holdings.

New vehicle sales in Africa’s second-biggest economy fell 9.2 percent in May from a year earlier, extending the decline to a fifth consecutive month, the National Association of Automobile Manufacturers of SA said on June 2.

The company said sales from its Russian equipment business declined 12 percent in the six months to March, according to an investor presentation on its website. Total revenue advanced 5 percent in the period.

Barloworld was closely monitoring the situation in the country, spokeswoman Lethiwe Motloung said on Friday.

“It all boils down to the jurisdictions where they operate,” Rhynhardt Roodt, a money manager at Investec Asset Management, said on June 11.

The rand declined 12 percent in the year to March, the most among 16 major currencies tracked by Bloomberg.

South African corporate bonds might be less volatile than shares because they tended to be traded less frequently, David Knee, a money manager at Prudential Portfolio Managers, said on Thursday.

“The pricing doesn’t react in the way that you see in the equity market, where you do have active daily trades.”

Barloworld shares fell 2.66 percent to close at R100.26 on the JSE on Friday. - Bloomberg

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