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Johannesburg - Bankers in South Africa who arrange corporate bonds are bracing for another lean year as concern about the global economy is expected to cap company borrowing.
One glimmer of hope is that stricter global Basel III banking regulations could result in an uptick in bond issuance.
Companies may turn to bond markets to raise funds as banks curtail lending, say debt capital markets bankers who make their money by arranging bond deals.
“Bank data shows that securitisation and corporate debt are starting to improve from low levels,” said Kim Silberman, an economist at BNP Paribas Cadiz Securities.
“Although there will be more raising of debt in the financial markets as opposed to from the banks, there hasn’t been a lot of borrowing from banks anyway. It should increase as Basel III is implemented, but that also depends on whether corporates need to raise debt or not.”
South African companies and state-owned enterprises have so far issued $5.9bn in debt so far this year, according to Thomson Reuters data, edging past last year’s total of $5.1bn.
The biggest overall issuances were from state-owned firms Eskom and Transnet. Investment bank Investec has issued the biggest bond by a South African listed firm so far this year, with an offering of almost $800m.
That was followed by $705m in fundraising by paper maker Sappi.
While the market is much healthier than in 2009 - when issuance came in just short of $4bn due to the global subprime loan crisis and a domestic recession - bankers say the pipeline remains thin, as nervous companies prefer to sit on their cash.
Corporates are hoarding an estimated R5bn, according to Silberman.
“In South Africa what you’ve got is corporates by and large don’t need any money and that they’ve got good balance sheets and they’ve been saving and they haven’t been investing,” said Stephen Kossef, chief executive of Investec [JSE:INL].
“We grew our (first-half) lending by 2%. Two percent - it’s nothing.”
Faizal Moolla, banking analyst at Avior Research in Cape Town, said he expected to see more issuances, as banks become more cautious about lending due to Basel III.
“It requires less capital from the banks to issue bonds, and if the bank is interested in that respective bond they can invest in it directly, so they don’t have take on additional credit exposure through vanilla lending.”
The Basel III rules agreed by international regulators require banks to hold a core capital buffer of 7% of their risk-weighted assets by the start of 2019.
Standard Bank Group [JSE:SBK], Africa’s most valuable bank, says it expects to arrange corporate bonds in excess of R10bn over the next four months.
“We are seeing a very healthy pipeline. We have quite a large number of mandates from corporates. We see it as quite a golden opportunity for corporates in South Africa to access liquidity,” said director of structured capital markets Megan Mc Donald.
One glimmer of hope is that stricter global Basel III banking regulations could result in an uptick in bond issuance.
Companies may turn to bond markets to raise funds as banks curtail lending, say debt capital markets bankers who make their money by arranging bond deals.
“Bank data shows that securitisation and corporate debt are starting to improve from low levels,” said Kim Silberman, an economist at BNP Paribas Cadiz Securities.
“Although there will be more raising of debt in the financial markets as opposed to from the banks, there hasn’t been a lot of borrowing from banks anyway. It should increase as Basel III is implemented, but that also depends on whether corporates need to raise debt or not.”
South African companies and state-owned enterprises have so far issued $5.9bn in debt so far this year, according to Thomson Reuters data, edging past last year’s total of $5.1bn.
The biggest overall issuances were from state-owned firms Eskom and Transnet. Investment bank Investec has issued the biggest bond by a South African listed firm so far this year, with an offering of almost $800m.
That was followed by $705m in fundraising by paper maker Sappi.
While the market is much healthier than in 2009 - when issuance came in just short of $4bn due to the global subprime loan crisis and a domestic recession - bankers say the pipeline remains thin, as nervous companies prefer to sit on their cash.
Corporates are hoarding an estimated R5bn, according to Silberman.
“In South Africa what you’ve got is corporates by and large don’t need any money and that they’ve got good balance sheets and they’ve been saving and they haven’t been investing,” said Stephen Kossef, chief executive of Investec [JSE:INL].
“We grew our (first-half) lending by 2%. Two percent - it’s nothing.”
Faizal Moolla, banking analyst at Avior Research in Cape Town, said he expected to see more issuances, as banks become more cautious about lending due to Basel III.
“It requires less capital from the banks to issue bonds, and if the bank is interested in that respective bond they can invest in it directly, so they don’t have take on additional credit exposure through vanilla lending.”
The Basel III rules agreed by international regulators require banks to hold a core capital buffer of 7% of their risk-weighted assets by the start of 2019.
Standard Bank Group [JSE:SBK], Africa’s most valuable bank, says it expects to arrange corporate bonds in excess of R10bn over the next four months.
“We are seeing a very healthy pipeline. We have quite a large number of mandates from corporates. We see it as quite a golden opportunity for corporates in South Africa to access liquidity,” said director of structured capital markets Megan Mc Donald.
