SA has raised $3bn (R43.7bn) in Eurobonds as part of its financing commitments outlined in the 2022 budget as yields for benchmark US Treasuries are rising in response to accelerating inflation.
The government sold $1.4bn (R20.4bn) of 10-year debt at 5.875% and $1.6bn (R23.3bn) billion of 30-year notes at 7.3%. That’s 309 and 447 basis points above the 10-year and 30-year US Treasury benchmarks, respectively, the National Treasury said in a statement on Tuesday.
The order book was $7.1bn (R103bn), meaning the notes were oversubscribed by almost 2.4 times, with demand from the UK, US, Europe, Asia and Africa. Investors included fund managers, insurance and pension funds, hedge funds, banks and other financial institutions.
The good demand also saw the final yields decline by 37.5 bps and 45 bps from initial pricing on the 10- and 30-year securities, respectively.
Inflation in the US reached 8.5% in March, the highest since December 1981 and will probably prompt further interest rate hikes. Last month, it raised its key federal funds rate from near zero to a range of 0.25% to 0.5%, and is projecting at least six more rate increases this year.
“Given the volatility in the market over the period, the decision to raise the foreign currency was delayed in accessing the market in a more constructive issuance window,” the National Treasury said in a statement on Tuesday.
The proceeds will fund the government’s foreign currency commitments, which includes about R1bn a year in departmental spending, mainly on embassies, as well as paying interest on and redeeming existing foreign bonds.
The National Treasury mandated Absa Bank/HSBC, Deutsche Bank/Nedbank and Rand Merchant Bank as joint lead managers. The empowerment partners for the respective banks were Tysys Advisory, Nations Capital Advisors; Rho Capital; and THEZA Capital.
“The South African government views the success of the transaction as an expression of continued investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management,” the Treasury said.
SA last raised money in the Eurobond market in September 2019, when it sold $3 billion of 2049 bonds, paying a coupon of 5.75%. Bloomberg reported. The yield on those bonds has since climbed to 7.05%, including a 24-basis-point jump on Monday, the biggest increase since April 2020, it added.
Update: April 12 2022
This story has been updated with additional information on the bonds' pricing and US inflation.
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