Strikes Plot With Rand to Crush Bond Sales: South Africa Credit

South African companies, buffeted by an economy buckling under mining unrest and the slumping rand, cut bond sales in the first half to the lowest level since 2009.

Rand sales from companies including SABMiller Plc and the South African unit of Daimler AG plunged 32 percent from the previous six months to 33 billion rand ($3.3 billion), according to data compiled by Bloomberg. For the second quarter, sales have dropped 47 percent compared with a year earlier, while in Poland they’ve surged 46 percent.

Companies are holding back expansion plans as Africa’s largest economy struggles with a 25 percent unemployment rate, the slowest growth since the 2009 recession and the worst-performing currency this year against the dollar among 16 major peers. Corporate issuers might return to the market during the second half once investors know more about the outcome of wage talks in industries including gold and coal, according to Standard Bank Group Ltd., the continent’s biggest lender.

“We’ve seen quite a lot of labor unrest, mining issues, growth issues, macro-economic factors specific to our country that are making corporates less aggressive,” Megan McDonald, head of debt primary markets at Standard Bank, said by phone from London yesterday. “There’s a bit of a wait and see over the next few months to see what happens economically in South Africa.”

Labor Unrest

Strikes at the country’s platinum, gold, iron-ore, chrome and coal mines shaved 30 basis points, or 0.3 percentage point, off the country’s economic growth rate this year, President Jacob Zuma said June 13. A decline in metals output, which makes up more than 50 percent of the country’s export earnings, contributed to the weaker currency.

Rivalry between the National Union of Mineworkers and the Association of Mineworkers and Construction Union spurred Zuma to appoint Deputy President Kgalema Motlanthe to broker a solution by hosting talks between the labor organizations, mining companies and government officials.

The rand weakened 0.5 percent to 9.9875 per dollar by 2:01 p.m. in Johannesburg, paring its decline this year to 15 percent. Yields on rand government bonds due December 2026 fell 29 basis points to 7.86 percent yesterday, paring the increase this year to 57 basis points.

Slower Growth

The central bank cut its forecast for economic growth this year to 2.4 percent from 2.7 percent, less than half the 7 percent the government says is needed to cut the country’s unemployment rate.

Yields on SABMiller’s 1 billion rand of fixed-rate debt maturing in March 2018 have risen 165 basis points to 8.08 percent since reaching a record low on May 9.

“Companies, being mindful of the gloomy economic growth prospects that face the country, are viewing any capital expansion or organic growth in operations with a fair amount of skepticism,” Bruce Stewart, head of debt capital market debt origination at Nedbank Group Ltd.’s investment-banking unit, said by phone from Johannesburg. Corporates “have postponed raising funding until economic fundamentals or requirements dictate otherwise,” he said.

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