South African Companies Funding Shorter-Term as Economy Faltersby
Standard Bank sees `clear signs of concern' in funding pattern
More than two-thirds of corporate funding is shorter-term
South African companies are becoming reluctant to raise long-term funding as the country’s economic outlook deteriorates, according to Standard Bank Group Ltd., Africa’s biggest arranger of corporate bonds.
About 74 percent of corporate bonds issued in Africa’s most-industrialized economy had maturities of three years or less, compared with 42 percent in 2014, according to Standard Bank data. Debt with maturities of five and seven years dropped to 26 percent of total sales excluding issuance by banks, from 54 percent last year.
“We’ve seen people taking a shorter-term view on funding,” Zoya Sisulu, manager of Standard Bank’s debt capital markets division, told reporters in Cape Town on Thursday. “That’s just a demonstration of how investors are reading the market and the impact of global events on South Africa.”
South Africa’s economy expanded 0.7 percent in the third quarter, narrowly dodging a recession after contracting in the previous three months. The rebound masks a deterioration in the economy triggered by power shortages and a slump in prices of platinum, copper and other commodities. Output is forecast by the central bank to expand 1.4 percent this year, which would be the slowest pace since the 2009 recession.
The central bank has little room to support growth as it struggles to keep inflation inside the 3 percent to 6 percent target. The Reserve Bank increased its benchmark repurchase rate by 25 basis points to 6.25 percent on Nov. 19, the second increase this year. An 18 percent slump in the rand hasn’t yet spurred an anticipated increase in exports, while unemployment is above 25 percent.
“We are seeing clear signs of corporate uncertainty,” said Alexi Contogiannis, a debt primary markets executive at Standard Bank. “Issuers are nervous about committing to long-term capital. There are so many short-term challenges -- labor, power, regulation -- we have corporates saying, let’s just assess our short-term needs.”
Corporate bond issuance including banks is forecast at 115.5 billion rand ($8.1 billion) this year, 5.6 percent higher than last year’s issuance of 109 billion rand, according to Standard Bank research. About 56 billion rand of the total will be from financial institutions, with 30 billion rand issued by state-owned companies and 18 billion rand by other companies.