Zoya Sisulu
With debt issuance volumes of R67.5-billion in the first half of this year, banking firm Standard Bank South Africa (SBSA) expects issuance to remain robust, with a forecast growth of 5.6% for the year ahead.
SBSA debt primary markets head Zoya Sisulu noted, however, that the details, when broken down by sector, told a different story.
The overall figure was also marginally lower than the R68.8-billion issued in the first half of 2014.
“We have seen transactions coming to market, there is certainly liquidity, [and although] the expectations have shifted from a sector viewpoint, the volume will remain, in that it will be skewed more to the financials, and we will see a lot less corporate issuance, but that is just a pricing issue.”
This was against a strong backdrop of increased risk sentiment in the local market, following the African Bank Investments Limited (ABIL) curatorship, ongoing volatility around the Greek exit discussions and decreasing emerging market (EM) appetite, with expectation of the Federal Reserve's hiking cycle.
In a statement, SBSA said the repercussions of the ABIL curatorship have persisted, after negative sentiment caused an increase in pricing of 30 to 40 basis points. “But once the market is broken down by sector, some positive trends are emerging. Issuance volumes have remained steady, owing to robust issuance from the big banks, even as market prices deter corporate issuance,” the statement read.
Corporate issuance stood at R8-billion for the first half of this year, significantly lower than expectations, as well as the 2014 issuance, which was R15-billion for the comparable period.
Meanwhile, Sisulu highlighted that banks issued a “significant amount, just over R37-billion”, in the first half of the year. “One factor is that there have been a lot of redemptions this year because [the banks] are starting to build up from a capital perspective and, because of regulatory reasons, are starting to fund significant volumes in the capital market,” she said.
Banks were expected to continue realising funding for regulatory purposes and investment banking activity on renewable-energy projects.
“When we look at [State-owned companies], we know that they have very large capital requirements,” Sisulu said, referring to the country’s extensive build programmes. “We expect them to fund consistently into the market.”
As such, Eskom and Transnet, who had the largest capital expenditure programmes, accessed the market and raised R6.5-billion and R2.9-billion respectively in the six months under review.
Total volume of issuance for the sector stood at over R15-billion and included Rand Water, South African National Roads Agency Limited and the Industrial Development Corporation.
SUB-SAHARAN AFRICA
Offshore issuance in this region had grown at an annual compound rate of 30% since 2010, reaching a record $15.7-billion in 2014. Despite this, Africa still only accounted for about 4% of overall EM volumes.
This resulted in strong investor demand for African issuance, as investors sough to diversify their asset base.
Sisulu noted that sub-Saharan African issuers had been able to take advantage of this strong investor demand, with the credit spread premium compared with the rest of the EM complex now all but eliminated.
The spread between the SBSA African bond spread index and the EM-wide Emerging Market Bond Index had narrowed to 20 basis points, from around 50 basis points a year ago.
However, she added that, given the volatility in offshore markets, there had been a lot less activity and the bank did not expect “a flurry of activity toward the end of the year”.