Cabinet welcomes $1.5bil bond sale

Wednesday, May 20, 2009

Pretoria - Cabinet has welcomed the success by National Treasury to raise $1.5 billion in the international markets through the sale of bonds.

Cabinet said the move represented confidence in the country and its economic policies.

"This amount is $500 million more than what National Treasury intended to raise due to the high demand for the bonds at a favourable rate," Government Spokesperson Themba Maseko said on Wednesday.

"The bonds were sold in the USA, Europe and Asia. This represents a resounding vote of confidence in our country and our economic policies," Mr Maseko said.

The sale of bonds follows the National Treasury's intention at the tabling of the 2009 National Budget to raise about 1 million US dollars in the foreign capital market to finance the country's budget deficit.

South Africa's budget deficit is estimated to widen to 3.8 percent of Gross Domestic Product this year, the biggest in a decade, as the nation boosts spending on roads, ports, rail links, social welfare and stadiums in anticipation of hosting the 2010 FIFA World Cup.

Following consultations and requesting of proposals from banks on how they would manage the transaction, JP Morgan and Barclays Capital/ABSA were appointed as managers. Standard Bank was appointed as co-lead manager to the process which was completed in April.

Following this process, a road show was organised whereby representatives from National Treasury, the Reserve Bank as well as investors from the United States, the United Kingdom and Germany met.

This according to National Treasury spokesperson Thoraya Pandy fulfilled the objective of "maintaining key relationships with historically important investors."

The National Treasury attributed the higher than expected amount to interest shown by investors in the bond.

"The reason for the higher amount is that the investors were so interested in the bond that the Treasury received bids of over $6 billion," she added.

The bond was priced at a spread of 3.7 percent above US treasury bonds and a yield of 6.9 percent, said National Treasury. This is to be repaid over a ten year period.

According to Ms Pandy this makes the bond one of the best priced offshore bonds ever since the commencement of the global financial crisis.

"Also the coupon price for this bond is the third lowest of all the dollar bonds issued by South Africa since 1994," said Ms Pandy.

According to National Treasury, the variety of investors who bought this bond went beyond the areas covered by the road show.

This represented a vote of confidence in government for its consistently sound macroeconomic policies and prudent fiscal management as well as confidence in policy continuity under the new administration.

Meanwhile, the Cabinet meeting also noted that the World Economic Forum's Africa forum is scheduled to take place in Cape Town from 19 to 21 June 2009.

"The Forum will be attended by a number of dignitaries including Heads of State and leaders from the rest of the continent," Mr Maseko said.

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