SA may tap international capital markets for the first time in almost two years to finance a widening budget deficit after a bond rally reduced borrowing costs.
The government picked Citigroup, Rand Merchant Bank and Standard Bank as joint lead managers and Investec as a co-manager for a call with investors yesterday, according to a person with knowledge of the plan, who is not authorised to speak publicly and who asked not to be identified.
SA may choose to sell a benchmark-sized dollar bond due in 2026, the person said.
The country’s financing needs have become pronounced as its budget deficit swelled to an average of about 4% of gross domestic product in the past four years.
This was one of the factors cited by rating agency Moody’s in its decision last month to place SA’s investment-grade rating on review for a reduction.
SA, which last sold dollar debt in July 2014, included plans in the budget announced in February to raise $1bn abroad.
“This would be good timing in my view,” said Kevin Daly, a money manager at Aberdeen Asset Management in London who helps oversee $10bn in emerging-market debt.
“Yields are generally very low and you have decent market demand,” Mr Daly said.
The premium investors demand to hold South African dollar debt rather than Treasuries has narrowed 145 basis points since touching a seven-year high on January 20 to 380 basis points, according to JPMorgan Chase indices. In that period, yields on SA’s dollar bonds due in September 2025 fell more than 127 basis points to 4.72% early in the afternoon on Wednesday in Johannesburg.
“It’s going to depend on the market conditions,” director-general of the Treasury Lungisa Fuzile said on Wednesday on the prospects for a Eurobond sale.
“If the market is right, in other words, we think we will get a good coupon, we will do it.”
Credit: Business Day