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SA bond market hasn't caught Ramaphosa bug

Mar 23 2018 11:44
Colleen Goko, Bloomberg

Johannesburg - It seems it will take more than “Ramaphoria", to spur the corporate debt issuers into action.

South African assets have rallied since President Cyril Ramaphosa was elected leader of the ANC in December, setting him on a path to replace former president Jacob Zuma last month.

With economic growth accelerating, inflation slowing and the new administration acting against corrupt officials, business confidence soared to a three-year high this month.

Still, bond sales by SA companies are off to the slowest start to a year since 2014 following record issuance last year, according to data compiled by Bloomberg.

Companies that have held back on investment amid the political uncertainty of the past few years will want further evidence of policy continuity and economic recovery, according to Mike van der Westhuizen, a portfolio manager at Citadel Holdings in Johannesburg.

“Corporate issuers will not be in a rush to ramp up issuance purely based on short-term sentiment,” Van der Westhuizen said.

No rush

“Although confidence on the ground seems to be picking up, corporate South Africa will probably be reluctant to significantly increase capital expenditure” until the government has addressed structural challenges holding back growth, he said.

Last year, issuance reached a record R142bn, a jump of about 40% from the previous year, according to Zoya Sisulu, the Johannesburg-based head of debt capital markets at Standard Bank [JSE:SBK]. Total issuance this year is at R28bn, down 23% from the same period in 2017, according to data compiled by Bloomberg.

Ample demand

“However, most of the issuance last year was related to refinancing debt that was maturing,” she said. “It’s likely that most companies had already made calls regarding what their finance needs would be this year and acted accordingly.”

When more corporates start tapping the market, there will be ample demand from investors, according to Deutsche Bank.

“There is still lots of liquidity looking for a home,” said Simon Denny, South African head of corporate finance at Deutsche Bank.

“On the local side, asset managers are highly interested in new issues, although the focus remains value.”

South Africa also has a sophisticated legal framework, good corporate governance and liquid capital markets, making it a “safe haven” for bond investors, Denny said. 

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cyril ramaphosa  |  markets  |  bonds  |  equities
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