Huge interest in SA global bond

Johannesburg - A South African $1.5bn 10-year global bond has drawn bids of more than $6bn, the National Treasury said on Wednesday.

The bond, issued on Tuesday, was arranged by Barclays, JP Morgan and Standard Bank. It was originally to raise $1 billion but was increased due to the strong interest.

Standard & Poor's rated the bond at BBB+ and Moody's at Baa1, saying the ratings were supported by prudent macroeconomic policies and relatively low debt.

"The ratings on South Africa are supported by its prudent macroeconomic policies, a moderate debt burden, and stable political institutions," S&P credit analyst Remy Salters said in a statement.

"These are balanced by continued high reliance on external portfolio inflows in the context of a large current account deficit, and severe structural socio-economic weaknesses."

South Africa's current account deficit stood at 5.8 percent of GDP in the first quarter of this year, having narrowed from 7.8 percent previously.

Salters said an orderly balance of payments correction and continued prudent fiscal policies would support the country's rating, while a loosening in policy would add downward pressure.

The agency cut the outlook on South Africa's sovereign rating to negative last year.

Rating agencies have voiced concerns about possible changes to economic policy under new President Jacob Zuma, due to the increased influence of his trade union and communist allies in the government. However, Finance Minister Pravin Gordhan has stressed the conservative stance of predecessor Trevor Manuel would continue.

S&P said South Africa's economy was likely to contract by 1.5 percent in 2009.

Africa's biggest economy has been hard hit by the global downturn, and is widely expected to have fallen into its first recession in nearly two decades in the first quarter of this year.

Moody's said growth would resume in the second half of the year after a "relatively brief" recession, helped by lower interest rates and higher government spending.

"Both domestic and external demand are weak, and the agency is also not optimistic that the economy will stage a more vigorous revival until sometime next year," said Kristin Lindow, Moody's Senior Vice-President.

Lindow said South Africa's low level of external debt was a key factor behind Moody's positive outlook on the government's Baa1 foreign currency rating.

"South Africa is issuing in the international capital market for the first time in two years," she said. "Its modest external financing requirements mean that the South African government only taps the market infrequently."

- Reuters