Standard Bank Group arranges record bond issuances in 2012
22 November 2012

Standard Bank Group has helped its South Africa-based corporate clients issue bonds and securitisations worth over R40-billion this year. 

Megan McDonald, head of Debt Primary Markets at Standard Bank Group, says: "This is a strong indication that clients are taking the consequences of Basel III very seriously and increasingly turning to the capital markets for their funding requirements. Whilst issuance in the securitisation markets continues to recover, we have seen record issuance in the debt capital markets this year." 

Says Andrew Costa, head of Standard Bank Group's Debt Capital Markets team: "We've had a very strong year so far with a lot of activity happening in a number of sectors and I expect bond issuances to be at an all-time high this year." 

One of the first sectors to realise the impacts of Basel III was the property sector, he says, where you have the likes Hyprop, Capital Property Fund, Redefine and Growthpoint becoming constant features in the market. 

Standard Bank Group has just successfully closed a R1-billion five-year term regulatory capital issue on behalf of its client Liberty Life to local institutional investors. The issue was a refinancing of existing regulatory capital and will be listed on the JSE's bond market. The issue was three times oversubscribed. 

"Even though the bond market is particularly buoyant at the moment, we were nonetheless surprised at the extent of enthusiasm for the paper. What made it easier is that Liberty Life is a quality issuer with a quality brand and a good AA rating," says Costa. 

In July alone, Standard Bank Group was lead arranger in two separate issuances by private hospital group Netcare and listed property fund Hyprop, which raised R1.2-billion and R700-million respectively. 

"Interest has not only been good from local investors but we are also seeing strong appetite from offshore investors for paper coming out of Africa", says McDonald. 

In another landmark transaction, in July 2012 Standard Bank Group was a joint lead manager of the successful US$1-billion 10-year bond issue for Transnet. The initial order book of US$8-billion contracted to only US$6.4-billion when Standard Bank Group reduced the price guidance by half a percent, which is a massive price jump in the bond world, says McDonald. This represented thelargest order book for a South African corporate. 

Issued at an interest rate of 4%, the bond was also the lowest US-dollar bond coupon by a South African issuer. It was the first offshore issuance Standard Bank Group has done for Transnet. 

Standard Bank Group is the only South African debt markets teams to have been awarded lead manager roles on offshore markets. 

"This is a trend that we expect to see continuing into 2013 as offshore investors, faced with near zero interest rate environments in the developed world, turn their attention to issuance by sovereign and corporate issuers from the African continent, in their search for enhanced yields." 

There have been significant inflows of cash from offshore and onshore investors into the South African bond market, especially on bonds issued by National Treasury and to a lesser extent by state-owned enterprises. 

"It is well-established that there is a lot of cash that investors are holding, for which they are looking for a home. Investors are hunting for higher yields and bonds are really finding favour now. This makes it a very good time for entities to be issuing bonds because, even though the returns may not be that spectacular in current conditions, there is still very steady growth there," she says. 

The noticeable shift by companies towards capital markets has a lot to do with the imminent implementation of Basel III capital reserve requirements, which Mr Costa says are going to make bank lending more expense for corporates and therefore unattractive as major sources of funding. 

He says the market is experiencing the start of the disintermediation of banks, a process in which corporates and other entities are cutting out bank lenders as intermediaries and are instead approaching capital markets directly for funding. Basel III will also weaken the banks' appetite for long-term lending. 

"The high capital reserve requirements on banks' lending books under Basel III will have a big impact on the appetite banks have; their returns on equity will drop, and this will in turn have a knock-on effect on the overall cost of money." says Mr Costa. 

"Banks are already paying more for the funds that they are lending on and once the provisions of Basel III come into effect, thesecosts will rise further. So, money that banks lend will become more expensive. Some corporates and other entities will be able to raise money at cheaper rates than banks can provide." 

Mr Costa suggests that the disintermediation of banks has not yet happened to a significant degree, but argues that once it is infull swing activity in the debt capital markets will further intensify. 

Says McDonald: "We have shown that we are ready to respond to changing client needs. As a market leader in the African bond and securitisation markets, Standard Bank is geared to address all sorts of capital market deals, including vanilla issuances, regulatory paper, convertibles, high yield and structured products such as securitisation. 

"We have a strong track record of bringing emerging market issuers to international and various domestic capital markets, and remain one of the leading players in debt origination in Africa," she says. 

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