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Tuesday, June 2, 2009

‘Strong vote of confidence’ as largest SA bond is snapped up

‘Strong vote of confidence’ as largest SA bond is snapped up

INTERNATIONAL investors have given SA a big vote of confidence by snapping up its largest dollar-denominated bond to date, despite the severe global lending crisis.
SA raised the amount on a 10-year issue it planned to raise offshore this year to $1,5bn from an initial $1bn after it was oversubscribed more than five times, the Treasury’s director-general, Lesetja Kganyago, said yesterday. “This is our most spectacular deal in history … we have had the most remarkable reception from investors despite the difficult financial environment,” he told Business Day.
It was the largest dollar-denominated issue since SA re-entered global markets in 1995, he said.

The annual coupon for the bond was 6,875% which was SA’s third- lowest on record, Kganyago said. The lower the coupon, the less expensive the bond is for SA’s government.

The new issue was priced at a spread of 375 basis points over US Treasuries, tighter than the guidance of 387,5 basis points initially offered by banks — also a success signal.

“This demonstrates a resounding vote of confidence in the policies we have been implementing in the past 15 years … we have had a lot of new investors subscribe,” Kganyago said.

“We can take comfort from the fact that even in this difficult environment we can have such a huge investor base. We are on a very solid wicket,” he said.

Kganyago was speaking after a road show to market the deal in Germany, Britain and the US.

SA last issued dollar-denominated bonds in May 2007 when it sold $1bn of 15-year securities. The 2022 bond yields 6,831%, or 345 basis points more than US treasuries.
The size of this new issue will help take pressure off domestic capital markets, which the government will tap to finance its budget deficit this year. Kganyago said it was too soon to say if the shortfall, which the Treasury forecasts at 3,8% of gross domestic product (GDP), would be exceeded.

SA’s budget balance swung back into the red with a shortfall of 1% of GDP last year after two years of small but historic surpluses.

Kganyago said the bond’s foreign investors ranged from pension funds to asset managers. “We managed to deepen support from investors who have a very strong relationship with SA and to attract new investors.”

The increase in appetite for SA debt is remarkable in the context of its newly elected government, widely perceived to be more left-leaning with more leaders from trade unions and the South African Communist Party.

The Treasury picked Barclays, JPMorgan and Standard Bank to arrange the deal.

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