BUSINESS MAVERICK: Treasury pulls rabbit out of hat with $5bn sale of two international bonds

The Treasury said on Tuesday 24 September it had raised $5-billion, a billion more than initially offered, from the sale of a pair of international bonds – one for 10 years, the other for 30 years. The transaction was 2.7 times oversubscribed, meaning almost $11-billion in bids were made, underscoring surprisingly robust investor appetite for South African debt. The Treasury statement added that the issuance was “believed to be the largest ever out of sub-Saharan Africa”.

Of course, South African debt comes with a risk premium, but amid all the doom and gloom about rising debt levels, a barely growing economy and plunging levels of business confidence, not to mention policy inertia, investors are hardly demanding the sky.The 10-year bond priced at a coupon rate and re-offer yield of 4.85% which represents a spread of 313 basis points above the 10-year US Treasury benchmark bond,” said the Treasury.The 30-year bond priced at a coupon rate and re-offer yield of 5.

This is clearly good news for South Africa and could – and should – dampen some of the hyperbolic chatter about prospects of an International Monetary Fund bailout. Foreign investors are generally shy of lending money to economies with finances in a state of disarray necessitating such action. The transaction comes ahead of a possible risk downgrade by international credit rating agency Moody’s, before the end of the year – which would complete the country’s spiral into junk territory.

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