South Africa has successfully issued a US$ 1.25billion 10-year bond in the international capital market to help finance its foreign currency commitments over the medium term, the Treasury said recently. In a statement, the Treasury said the dollar bond, with a coupon of 4.875%, had been more than two times oversubscribed with an investor base primarily located in Europe and the U.S.
“The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management,” it said. The bond launch follows a March road show where Finance Minister Pravin Gordhan sought to reassure investors about continuity in fiscal policy. Investors were skeptical after President Jacob Zuma changed finance ministers twice in less than a week in December.
The rand extended gains against the dollar after the Treasury’s statement, climbing to a session high of 15.0600, up 1.2% on announcement. Government bonds also edged higher with the benchmark government issue due in 2026 dipping four basis points to 9.235%. The treasury said the new foreign bond formed part of South Africa’s 2016/17 financing programme. Its proceeds would partly finance the government’s foreign currency commitments of US$6.4billion over the medium-term.
The coupon for the bond represents a spread of 335 basis points above the 10-year U.S. Treasury benchmark, which analysts said was in line with South Africa’s current funding rate. South Africa might, however, be forced to borrow at a higher premium as it faces the risk of losing its investment-grade credit rating because of persistently weak growth and large deficits.