Standard Bank Group boosts debt capital market with five issues valued at R6,1bn

Standard Bank Group has concluded five major corporate bond issuances in the past month with a value of R6,1-billion. Standard Bank has assisted Netcare, PPC Ltd, Mercedes Benz, SABMiller and the City Of Tshwane to access the bond market for their funding requirements. Netcare is the only healthcare company to have issued into the debt capital markets (DCM) with over R3-billion currently in issue. Netcare issued five-year A-rated notes for R600-million, (18 March 2013), and was more than three times over-subscribed. PPC Ltd issued three-year notes for R650-million, (20 March 2013).

This was PPC's debut in the DCM, and despite this, the issue was robustly supported being more than four times over-subscribed. SAB South Africa issued five-year AA+ rated notes for R1-billion, (26 March 2013), and was more than twice over-subscribed. As with PPC, the issue was at the lowest end of the pricing guidance. This issue was the lowest ever coupon raised. Mercedes Benz South Africa issued one and three year AA+ rated notes for R2,5-billion, (25 March 2013).

In 2012 Mercedes Benz South Africa was the largest corporate issuer of ZAR bonds in the market raising R4-billion. The City of Tshwane became the fourth of the big-five South African metropolitans to raise capital on the DCM, to create a sector which is expected in time to become one of the major drivers of this market. The R1,39-billion of 10 and 15 year notes, (27 March 2013) was well over-subscribed, and priced aggressively given their long tenor.

The South African bond market has experienced significant growth, last year's level of R100-billion in issuance was the highest ever by some margins, and we expect the trend to continue for 2013 , says Ms Megan McDonald, Head of Debt Primary Markets at Standard Bank. The widening of local investment mandates by South African institutional investors, is driving this demand by allowing investors to participate more broadly in the corporate bond market. In addition, growing interest in the South Africa debt capital markets by foreign investors has further supported liquidity in the market. Foreign investors typically participate aggressively in sovereign issuance, which has tended to drive domestic investors looking for higher yields into the corporate market.

"In the past the debt capital market tended to be dominated by blue-chip companies, and while the current listings are still household names in South Africa it does represent a significant diversification of the market. These are companies and other entities which are anticipating the introduction of the Basel regulatory environment and are proactively looking to diversify their funding base. Indeed, this is precisely what rating agencies are recommending large companies do in order to strengthen their balance sheets," explains Ms McDonald.

This is not the first time companies have sought to diversify their sources of capital, says Ms McDonald, but what is different now compared to 2008/2009 when the liquidity crisis first prompted the economic slowdown, is that the debt capital market space is today far more mature and therefore represents a viable alternative.

"Local investors have been highly impressed at the quality of recent issues as demonstrated by the strong investor demand. The transactions were significantly oversubscribed, up to four times, and tight pricing achieved across the board. For issuers, it makes sense to come to the market as the dynamics are currently highly favourable" says Ms Mc Donald.

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