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South African government issues $5bn in bonds
September 26, 2019, 6:46 pm

“The South African government sees the success of the transaction, believed to be the largest ever out of Sub-Saharan Africa, as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management.”

The National Treasury building in Pretoria [PREUSS]


The South African government placed $5 billion worth of bonds in the international capital market on September 23 2019 in the largest bond issuance by a Sub-Saharan African country.

Despite its large size, the $2 billion 10-year bonds and the $3 billion 30-year bonds, were 2.7 oversubscribed compared with a 1.7 over-subscription in May 2018, when only $2 billion worth of bonds were issued.

The 10-year bond priced at a coupon rate and re-offer yield of 4.85 per cent which represents a spread of 313 basis points above the 10-year US Treasury benchmark bond. In May 2018 the 12-year bond was priced at a coupon rate of 5.875 per cent, which represented a spread of 280.5 basis points above the 10-year US Treasury benchmark bond.

The 30-year bond was priced at a coupon rate and re-offer yield of 5.75 per cent which represents a spread of 358.6 basis points above the 30-year US Treasury benchmark bond. In May 2018, the 30-year bond was priced at a coupon rate of 6.300 per cent, which represented a spread of 310.1 basis points above the 30-year US Treasury benchmark bond.

Investor demand for the $5 billion bonds came from Europe, North America, Asia, South America, Middle East, Africa and others. In terms of investor type, demand was supported by a mixture of Fund Managers, Insurance and Pension Funds, Financial Institutions, Hedge Funds and others.

The National Treasury mandated Citi, Deutsche Bank/Nedbank (consortium), Rand Merchant Bank, and Standard Bank as Joint Bookrunners. The empowerment partners for the respective banks are: Crede Capital Partners, Rho Capital; Theza Capital; and Africa Rising Capital.

The 2019 Budget Review made provision for $2 billion equivalent to be raised in the international capital markets in 2019/20 to fund government’s foreign currency commitments. Of the $4 billion planned for 2018/19, only $2 billion was issued and the remaining $2 billion was deferred to 2019/20, bringing the total foreign borrowing requirement for the year to $4 billion.

Due to the favorable pricing and a sizable order book, the National Treasury was able to pre-fund an additional $1 billion over the planned $4 billion. Pre-funding is the early issuance of an amount planned to be issued in future years. This is done to take advantage of good pricing and favorable market conditions while reducing future borrowing need.

Helmo Preuss in Makhanda, South Africa for The BRICS Post

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