South Africa Tests Eurobond Market After Rating Downgrade

JOHANNESBURG (Capital Markets in Africa) – South Africa’s borrowing costs may rise in a Eurobond offering Tuesday, the country’s first since it joined the ranks of high-yield issuers after two companies lowered its credit ratings to junk.

The country is selling 10-year dollar bonds with initial price guidance of about 5 percent, the National Treasury said in an emailed response to questions, without disclosing the amount. That’s higher than the rate on existing securities due 2028, which climbed eight basis points to 4.85 percent as of 1:43 p.m. in London. South Africa is also offering 30-year notes at about 5.875 percent, the Treasury said.

S&P Global Ratings and Fitch Ratings Ltd. cut South Africa’s credit assessments to junk in April after President Jacob Zuma removed Pravin Gordhan as finance minister. The Treasury said last month it could sell as much as $2 billion of Eurobonds.

“The pricing is quite generous,” given that South Africa’s Eurobonds maturing in 2046 were yielding only 5.37 percent last night, said Richard Segal, a London-based credit analyst at Manulife Asset Management. The yield on those rose to 5.45 percent Tuesday.

The pricing on the new Eurobond may be “tightened a lot” as bids come in, Segal said.

Demand for riskier assets has soared this year as investors try to make up for historically-low rates in developed nations. The average yield on emerging-market Eurobonds has fallen 57 basis points to 4.04 percent this year, according to Bloomberg indexes.

Received bids of $2.1b for $1b 10-year bond and $3.2b for the $1.5b 30-year paper, National Treasury says in emailed statement. 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”

Source: Bloomberg Business News


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