Namibia’s debut rand bond sale, the first by a foreign government, will probably prompt other African nations to sell bonds in the South African currency, lured by an investment industry overseeing $600 billion of assets.
South Africa’s neighbor sold 850 million rand ($96 million) of 10-year debt at a yield of 105 basis points more than benchmark South African bonds maturing in February 2023, less than the 144 basis-point premium of Namibia’s local bonds due in October 2024.
The sale follows rand offerings by Goldman Sachs Group Inc. and Sydney-based Macquarie Group Ltd. (MQG) in the past year that helped expand bonds listed on the Johannesburg Stock Exchange to 1.45 trillion rand. Swaziland and Lesotho, which are in a common monetary area with South Africa and Namibia, may follow with their own rand bond sales, according to Leon Myburgh, a currency strategist for sub-Saharan Africa at Citigroup Inc.
“In the monetary union, because they are pegged to the rand, there is very little reason why they shouldn’t be doing it,” Myburgh said by phone from Johannesburg yesterday. “It gives them the opportunity to tap into a very large pool of savings.”
The bond sale has attracted new investors to Namibia’s debt and set a benchmark for future offerings, Deputy Finance Minister Calle Schlettwein said in a phone interview yesterday from Windhoek, the nation’s capital. The majority of the investors were from South Africa, though two were from outside the continent, he said. They included pension funds, money managers and banks, Schlettwein said.
Namibia is planning to sell an additional 2.15 billion rand of bonds, it said in a prospectus published on Nov. 3. It also issued 500 million euros ($637 million) of debt in October 2011 at a yield of 5.67 percent, or 335.7 basis points over U.S. Treasuries. Those bonds yielded 3.99 percent yesterday.
“This is an important milestone because it is the first step to make concrete use of the benefits of the common monetary area,” Schlettwein said. “We would encourage other countries to do the same.”
The JSE is seeking to lure listings by sovereigns and the bourse is investigating how to help nations raise foreign currency debt in South Africa as well as rand securities, said Bernard Claassens, the exchange’s head of bonds.
“We are definitely never going to turn away any issuance, Claassens said by phone yesterday. ‘‘We are proactively always trying to look at any country to get them to issue rand-denominated bonds. We definitely welcome Namibia’s listing on our bond market, and hopefully it’s the first of many.”
Namibia sold the debt in Johannesburg even after Moody’s Investors Service and Standard & Poor’s downgraded South Africa’s credit ratings in the past seven weeks and violent labor strikes that started in the platinum industry in August shut some mines.
Yields on South Africa’s benchmark notes due December 2026 dropped 80 basis points this year to 7.71 percent yesterday. Equivalent Namibian local bonds yield declined 94 basis points to 8.68 percent over the same period. Namibia’s foreign-currency debt is rated BBB- by Fitch Ratings and Baa3 at Moody’s, the lowest investment grade. South Africa is rated two levels higher at Moody’s and one higher at Fitch.
“It’s not a bad thing if different sovereigns come to South Africa to sell debt,” Chris Hamman, who helps oversee fixed-interest investments among $63.5 billion of assets at Cape Town-based Sanlam Investment Management, said by phone yesterday. “The bigger the debt universe the better for domestic portfolios. It is definitely something we would look at.”
Six sub-Saharan African nations, including Angola and Kenya, may each raise the equivalent of at least $500 million outside of their own markets in the “next few years” to fund infrastructure spending, Moody’s said on Oct. 3. Rwanda, Tanzania, Uganda and Mozambique may also sell their first foreign-currency bonds, setting a benchmark yield for companies, including state-owned ones, the ratings company said in a report. Moody’s didn’t specify where they would raise the money.
Those that do use South Africa have to contend with the rand’s movements, Arno Lawrenz, chief investment officer at Cape Town-based Atlantic Asset Management Ltd., which oversees $6.5 billion, said by phone yesterday.
It’s easy for Namibia to sell rand bonds “as there’s no real currency risk due to the currency peg,” he said. “They don’t have to do any currency hedging.”
The currencies of Namibia, Swaziland and Lesotho are interchangeable with the rand, eliminating the risk of debt repayments rising, while lowering borrowing costs, Citigroup’s Myburgh said.
The three-month implied volatility of the rand versus the dollar, which measures expectations of price swings, was 14.35 percent, the highest among 25 emerging-market currencies tracked by Bloomberg. The rand weakened 0.1 percent to 8.9236 a dollar at 10:50 a.m. in Johannesburg, extending its decline this year to 9.3 percent, the most after Brazil’s real out of 16 major currencies.
Namibia, the world’s biggest offshore diamond miner and the fourth-largest uranium producer, relies on income from a customs union with South Africa, Swaziland, Lesotho and Botswana for about a third of its budget, according to government data. The nation’s budget deficit is estimated to average 3.6 percent of gross domestic product from the 2011-12 fiscal year to 2013-14, while public debt will average 28 percent of GDP.
“We are very satisfied with the outcome of the bond sale,” Schlettwein said. “It showed there is trust in the Namibian economy. We have a good story to tell.”
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