A Citibank sign is seen at a branch of the bank in Manhattan, New York. File picture: Mike Segar A Citibank sign is seen at a branch of the bank in Manhattan, New York. File picture: Mike Segar
London - South Africa is preparing a return to the international debt market for the first time in almost two years, after borrowing costs fell and President Jacob Zuma survived an impeachment bid, reducing short-term political risks.
The government picked Citigroup, Rand Merchant Bank and Standard Bank as joint lead managers and Investec Bank as a co-manager for a call with investors on Wednesday, according to a person with knowledge of the plan, who isn’t authorised to speak publicly and asked not to be identified. Africa’s most-industrialised country may choose to sell a benchmark-sized dollar bond due in 2026 subject to market conditions, the person said.
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Ruling-party lawmakers on Tuesday defeated a motion to remove Zuma brought by the main opposition party after a court ruled last week that the President violated the constitution by refusing to repay taxpayer money spent on his private residence. South Africa, which last sold dollar debt in July 2014, included plans in the budget announced in February to raise $1 billion abroad.
“This would be good timing in my view,” said Kevin Daly, a money manager at Aberdeen Asset Management in London who helps oversee $10 billion in emerging-market debt. “Short-term risk is arguably lower now that Zuma has survived, as expected, the impeachment vote. Yields are generally very low and you have decent market demand.”
Lower costs
The premium investors demand to hold South African dollar debt rather than US Treasuries has narrowed 145 basis points since touching a seven-year high on January 20 to 380 basis points, according to JPMorgan Chase & Company indexes. In that period, yields on South Africa dollar bonds due in September 2025 fell more than 122 basis points to 4.78 percent by 5.16pm in Johannesburg.
“It’s going to depend on the market conditions,” Lungisa Zuzile, the director-general of South Africa’s National Treasury, said in Cape Town on Wednesday on the prospects for a Eurobond sale. “If the market is right, in other words we think we will get a good coupon, we will do it.”
Finance Minister Pravin Gordhan travelled to the UK and US from March 7-11 to meet investors for a so-called non-deal roadshow.
Moody’s Investors Service last month placed the country’s investment-grade rating on review for a reduction. A downgrade of the Moody’s Baa2 rating would move South Africa to one level above junk and on par with the views of Standard & Poor’s, which has a negative outlook and is reviewing the score in June, and Fitch Ratings.
“Should they be actually downgraded, I don’t expect the spread will tighten further,” said Giuliano Palumbo, a Milan-based money manager at Arca SGR. “I think it could be a good window” to sell now.
* With assistance from Mike Cohen
BLOOMBERG