Johannesburg - Imperial Holdings, the owner of South Africa’s biggest car dealership network, is lengthening the maturities of its debt, exploiting a “liquidity bubble” among investors.
The Johannesburg-based company, which sells cars from Toyota, BMW and others, sold R1.5 billion of floating-rate notes due October 2020, according to an e-mailed notice from the JSE last week. It paid 175 basis points above the three-month Johannesburg interbank agreed rate, or 6.89 percent. Yields on Imperial’s September 2017 rand debt had fallen 13 basis points this month to October 9, compared with a 14 basis-point drop in dollar rates on JPMorgan Chase’s CEMBI transport blended yield index.
“There is a liquidity bubble among asset managers,” Abri du Plessis, a money manager at Gryphon Asset Management, said last week. “There’s a lot of money that’s looking for a home. Corporate credit is one of the hot topics at many income funds these days.”
Demand for South African floating-rate notes has boosted the JSE credit floating index by 6.1 percent this year. It was at 197.29 points last week, the highest in almost two weeks. Pension funds in Africa’s biggest economy are not allowed to invest more than 25 percent of their money outside the country in the state’s bid to create a local capital pool for domestic bonds.
Imperial’s issuance, which was done through a private placement, would be used to repay shorter-term debt and improve liquidity management, its treasurer Willem Reitsma said last week. “The market for corporate paper is attractive. When there are investors that have appetite for it, a person must look at that and issue into that market,” he said, adding the bonds would allow the company to rely less on bank financing as it turned to the market for funds.
While borrowing from banks was cheap, it could be riskier than bonds, Simon Howie at Investec Asset Management said. “It gives you no security and gives you liquidity risk.”
The company’s revenue rose 14 percent in the financial year through June and its stock has risen 11 percent this year, matching the increase in the benchmark 165-member FTSE/JSE Africa all share index.
Its performance might have helped it attract more funds seeking to invest in corporate bonds if it had made an open sale, Howie said. “Imperial Holdings is a strong credit. They would’ve done better by coming more widely to the market.”
Imperial Holdings closed down 0.79 percent at R218.45 on Friday, from an intraday high of R222.61. - Bloomberg