Investors buy into 'SA story'
12 May 2003
South Africa launched a €1.25-billion 10-year global bond offering on Friday, luring a range of international investors, many of whom had not previously bought SA bonds, at a price better than the market expected.
Finance Director-General Maria Ramos, who has just led a National Treasury team on a four-day investor roadshow in Europe, said that "the response by the international investor community to our 10-year Euro Global issue is a vote of confidence in our macro-economic policy management and the track record established since 1994".
The resilience of South Africa's economy, guided by consistent economic policies, "has been increasingly recognised not only by the investment community but also by the analysts and the rating agencies", Ramos added. "The successive notch upgrades by Fitch as well as Standard & Poor's are testimony to South Africa's success story."
According to Business Day, the bond issue was priced at a spread of 125 basis points over the mid-swap rate, better than the expected 128-138 basis points.
Ramos said it was noteworthy that, considering the price and the implicit risk premium, the financial markets had significantly reduced the risk associated with South African credit.
"Whereas, nearly four years ago, South African bonds with seven-year maturity were priced 328 basis points over the German government seven-year benchmark, this week our Global Euro Bond ... was priced at 125 basis points over swaps, which is 142 basis points over the German government 10-year benchmark.
The proceeds of the eurobond issue will boost the country's foreign exchange reserves by bringing SA's net open forward position, run up to a peak of $23-billion when the Reserve Bank tried to defend the rand during the 1998 emerging markets crisis, to a near closure.
Ramos told Business Day that the bond issue was
unprecedented in the breadth of its distribution, with 16% being taken up by US investors - even though the marketing roadshow took in only European financial centres - 25% by UK investors, 24% by German investors, 15% by Asian investors, 10% by Middle East and African buyers, 5% by Scandinavians, and 5% from the rest of Europe.
Setting a new benchmark for South Africa's global creditworthiness has important socio-economic consequences, both reducing both the cost of finance for government and enabling SA companies to access international lines of credit and finance at lower costs.
"At this time of global uncertainty and persistent volatility, at a time when developed and developing economies face ongoing vulnerabilities- and some even experience ratings downgrades - it is especially significant that South Africa has moved up the sovereign credit scale in recent years", the Treasury said in a statement.
"We chose the right market at the right time", Ramos told
Business Day. "The SA story has now made it onto the screens of international investors."
SouthAfrica.info reporter
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