Financial institution Rand Merchant Bank (RMB) was appointed by the National Treasury as joint lead manager, along with financial institution consortiums Absa Bank and HSBC, as well as Deutsche Bank and Nedbank, in raising $3-billion worth of South African sovereign bonds.
RMB said on April 12 that, with a final order book of nearly $7-billion, the issuance was oversubscribed by 2.4 times – evidence of robust investor sentiment for the credit.
Treasury explained that investor demand had come from across the UK, North America, Europe, Asia, Africa and others. In terms of the investor profile, demand came from a combination of fund managers, insurance and pension funds, hedge funds, banks and other financial institutions.
Two tranches were placed in international capital markets on April 11 – $1.4-billion of ten-year notes at a 5.875% yield, maturing in 2032, as well as $1.6-billion of 30-year notes at a yield of 7.30%, maturing in 2052. This was 37.5 basis points and 45 basis points, respectively, below initial price thoughts, thereby achieving lower interest rates for the issuer, RMB said.
Treasury explained that the 2022 Budget Review had made provision for the money to be raised in the international capital markets to fund government’s foreign currency commitments.
“Given the volatility in the market over the period, the decision to raise the foreign currency was delayed in accessing the market in a more constructive issuance window,” Treasury said.
The ten-year bond represented a spread of 309 basis points above the ten-year US Treasury benchmark bond, while the 30-year bond represented a spread of 447 basis points above the 30-year US Treasury benchmark bond.
The dollar-denominated bonds were rated Ba2, BB- and BB- by credit rating agencies Moody’s, S&P and Fitch, respectively, and are to be listed on the Luxembourg Stock Exchange.
“The capital raise was particularly successful against a global backdrop of heightened market volatility, falling emerging market bond prices and rising short term interest rates.
“We achieved this strong result as a function of South Africa’s regular investor engagement giving the issuer maximum flexibility to execute a transaction when an issuance window is most constructive,” said RMB International debt capital markets team senior transactor Lwandile Nene.
He added that the issuance was a further fillip for South Africa and followed Moody's recent revision of South Africa's outlook to ‘stable’ from ‘negative’ based on the country’s improved fiscal outlook.
“The South African government views the success of the transaction as an expression of continued investor confidence in the country’s sound macroeconomic policy framework and prudent fiscal management,” Treasury stated.
The empowerment partners for the respective banks were Tysys Advisory, Nations Capital Advisors, Rho Capital and THEZA Capital.