South Africa’s corporate borrowers are steering clear of the bond market following May’s election, which delivered a broad coalition that investors fear may prove unstable.
While corporate debt usually rebounds in June during election years, an analysis by Rand Merchant Bank showed that this year was different: issuance contracted in the month, even as yields on benchmark government debt tumbled. ADVERTISEMENT CONTINUE READING BELOW After the African National Congress lost its outright majority in the May 29 vote for the first time in three decades, it took the leaders of almost a dozen parties a month to hammer out a deal on a coalition government.
“The extended period of uncertainty drove issuers to the private placement market,” RMB credit analyst Kate Rushton wrote in a report. Companies sold just R6.1 billion of bonds in June, down from R17.9 billion the month before, according to RMB data. That compares with an average of R13.2 billion of June issuance in the preceding 10 years.
In 2014 and 2019, the previous national election years, issuance rebounded to R16.4 billion in June from R8.9 billion in May, and R20.5 billion from R12.5 billion, respectively. ADVERTISEMENT: CONTINUE READING BELOW Still, year-to-date issuance of R68.4 billion is on track to reach RMB’s forecast of R131 billion for 2024.