While local debt capital markets would not reach the record high of R121.69-billion achieved in 2012, the still buoyant market was forecast to issue R116-billion in bonds this year.

This was revised upwards from an initial forecast of R104.5-billion, as higher-than-expected issuance from municipalities and State-owned Companies (SOCs) emerged during the first half of 2013.

SOC issuance was expected to reach R25-billion in 2013, up from the R14.62-billion recorded in 2012, on the back of ramped-up spending by power utility Eskom and freight group Transnet, said Standard Bank debt primary markets manager Alexi Contogiannis.

Transnet last month raised R3.3-billion in a bond issue, bringing the firm’s total first-half capital raising to R4.3-billion – over double the R1.7-billion raised in the first half of 2012.

Eskom had become the largest contributor to the SOC sector's debt capital market, with a R8.2-billion issue during the first half of 2013, up from the R2.2-billion recorded in the corresponding period in the prior year.

Total SOC issuance had also been boosted by aviation group Denel’s R1.4-billion issue in January.

Municipalities would record a R4-billion issuance – a jump from the already-exceeded R800-million reported in the prior year.

City of Tshwane entered the market earlier this year with a R2.1-billion raising across three notes, while Ekurhuleni metropolitan municipality issued a new R800-million bond.

In contrast, Standard Bank head of debt primary markets Megan McDonald said a slowdown in corporate issuance was expected, not as a result of lagging investor appetite, but rather because of dampening internal economic factors and corporate firms no longer driven to raise capital in markets.

While corporate issuance volumes were expected to increase slightly from R29.10-billion in 2012, to R30-billion in 2013, market conditions remained favourable and volumes “could surprise on the upside”.

She pointed out that, corporate-sector issuances last year contributed largely to the record-high volumes achieved.

In anticipation of the incoming Basel III regulations, which would drive funding costs up, and in efforts to diversify sources of funding, corporate firms, with many debuts, embarked heavily on capital raising through corporate bond issues, boosting volumes 25% last year.

The Basel III regulations aimed to strengthen the protection of depositors and enhance the integrity of the financial system. However, as a result of the more stringent bank regulations, traditional funding, such as bank loans, had become more expensive.

Financial and securitisation volumes were expected to decline from R60.27-billion and R16.9-billion respectively, in 2012, to R45-billion and R12-billion respectively, during 2013.

OUTLOOK
Despite changing sentiment and increased cautiousness within emerging markets, South Africa’s capital markets remained favourable for corporations to raise bonds, with the nation's "pool of liquidity” supporting large transactions and resulting in oversubscriptions, McDonald reaffirmed.

In May and April, Standard Bank concluded five major corporate bond issuances, including the City of Tshwane issue, enabling access to the bond market for funding requirements, to the value of R6.1-billion.

The bank had assisted Netcare with an issue of over R3-billion and cement manufacturer PPC’s debut to the market with three-year notes for R650-million.

Mercedes-Benz issued one- and three-year AA+ rated notes for R2.5-billion and SABMiller issued five-year AA+ rated notes for R1-billion.