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Johannesburg - South African companies are becoming reluctant to raise long-term funding as the country’s economic outlook deteriorates, according to Standard Bank Group, Africa’s biggest arranger of corporate bonds.
About 74% of corporate bonds issued in Africa’s most-industrialised economy had maturities of three years or less, compared with 42% in 2014, according to Standard Bank data. Debt with maturities of five and seven years dropped to 26% of total sales excluding issuance by banks, from 54% last year.
“We’ve seen people taking a shorter-term view on funding,” Zoya Sisulu, manager of Standard Bank’s debt capital markets division, told reporters in Cape Town on Thursday. “That’s just a demonstration of how investors are reading the market and the impact of global events on South Africa.”
South Africa’s economy expanded 0.7% in the third quarter, narrowly dodging a recession after contracting in the previous three months. The rebound masks a deterioration in the economy triggered by power shortages and a slump in prices of platinum, copper and other commodities. Output is forecast by the central bank to expand 1.4% this year, which would be the slowest pace since the 2009 recession.
'Corporate uncertainty'
The central bank has little room to support growth as it struggles to keep inflation inside the 3% to 6% target. The Reserve Bank increased its benchmark repurchase rate by 25 basis points to 6.25% on November 19, the second increase this year. An 18% slump in the rand hasn’t yet spurred an anticipated increase in exports, while unemployment is above 25%.
“We are seeing clear signs of corporate uncertainty,” said Alexi Contogiannis, a debt primary markets executive at Standard Bank. “Issuers are nervous about committing to long-term capital. There are so many short-term challenges - labour, power, regulation - we have corporates saying, let’s just assess our short-term needs.”
Corporate bond issuance including banks is forecast at R115.5b. ($8.1bn) this year, 5.6% higher than last year’s issuance of R109bn, according to Standard Bank research. About R56bn of the total will be from financial institutions, with R30bn issued by state-owned companies and R18bn by other companies.
