South Africa Seals Lowest Dollar-Borrowing Costs Yet in Sale

  • Country sells $3 billion of new securities due 2028, 2046
  • Investors bid for 2.5 times amount as rating reviews loom

South Africa achieved its lowest borrowing costs yet for dollar-denominated debt, taking advantage of demand for emerging-market debt to raise $3 billion as rating companies prepare to review the country’s creditworthiness.

In its second foray into international debt markets this year, the country sold $2 billion of 12-year notes and $1 billion of 30-year securities with investors in Asia, Europe and the U.S. who placed orders for 2.5 times the amount, the National Treasury said in an e-mailed statement. About $700 million will be used to buy back existing bonds due 2019 and 2020, it said.

The 12-year bonds pay a coupon of 4.3 percent, or 273.8 basis points above similar-maturity U.S. Treasuries, with the 30-year notes paying 5 percent, a premium of 271.9 basis points over Treasuries. South Africa’s lowest coupon previously was 4.665 percent paid on 12-year bonds sold in 2012.

‘Opportunistic Timing’

“It was quite a successful auction for them in terms of the pricing,” said Rashaad Tayob, head of fixed-interest income investments at Abax Investments in Cape Town. “It was opportunistic timing. Emerging-market bonds have been very strong over the last few months.”

Finance Minister Pravin Gordhan, who is battling to stave off a credit-rating downgrade to junk amid lackluster economic growth and political turmoil, will present the medium-term budget to lawmakers in Cape Town on Oct. 26. Moody’s Investors Service, which rates South Africa’s debt two levels above junk with a negative outlook, is scheduled to release a review of the rating in November. Fitch Ratings Ltd. and S&P Global Ratings Ltd., which both rate South Africa at the lowest investment level, are due to publish their reviews in December.

“There’s still a lot of inflows coming into sovereign hard currency in emerging markets,” said Anders Faergemann, senior portfolio manager at PineBridge Investments Europe Ltd. in London. “However, I do think some of the more cynical investors view the timing as a bit curious and may see it as a signal that the authorities fear South Africa will be downgraded in the fourth quarter. We did look at it and we didn’t get involved.”

Barclays Plc, HSBC Holdings Plc, JPMorgan Chase and Co. and Nedbank Group Ltd. managed the sale.

“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,” the Treasury said.

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