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Tripling of South African bond buying signals new faith in rule of law

Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – A tripling of South African bond sales this year on Monday added to signs that investors’ faith in its institutions has been somewhat restored following a court ruling against President Jacob Zuma and the appointment of a former finance minister.

Securities exchange figures showed foreign investors bought a net 30 billion rand ($2 billion) worth of South African debt in 2016, compared with 10 billion in the same period last year.

The Treasury is flush with cash after a $1.25 billion 10-year bond sale this month was two times oversubscribed, and bond yields have recouped heavy losses in December after Zuma fired his finance minister, raising fears of political interference.

Benchmark yields, which spiked to a record 10.38 percent after Zuma briefly replaced Nhlanhla Nene with a virtually unknown politician, have since recouped nearly 140 basis points, a third of which was after the ruling against Zuma.

Sentiment, helped by Zuma bringing back Pravin Gordhan as finance minister, improved further after the Constitutional Court found that the president was wrong to ignore an order to repay state funds used to upgrade his Nkandla home.

“Having Pravin Gordhan back in control, and having this noise around Nkandla and Jacob Zuma, is showing the market that South African institutions are still strong,” Investec fixed income portfolio manager Vivienne Taberer said.

Analysts said markets were also cheered by a backlash against the Gupta family and its businesses. South Africa’s four big banks cut ties with a Gupta-owned investment company over criticism that the family has undue influence with Zuma.

“Government and state owned enterprises can get about their constitutionally mandated activities, less encumbered by predatory actions of (the) president and his allies,” BNP Paribus Securities South Africa analyst Nic Borain said.

“We expect markets – especially the bonds, currency and banks – to track the ebbs and flows of Jacob Zuma’s fortunes.”

Added to that, signals from the central bank and Treasury that they will pursue prudent policy have seen South African assets leading emerging market gainers, boosted by signs that the U.S. may not hike interest rates as quickly as expected.

Recent economic data out of China, a major consumer of emerging market commodities, has also lessened worries over a slowdown in the world’s second largest economy.

“If this environment, where we see the Fed not really doing much and being cautious over the balance of this year, continues and we continue to see reasonable data coming out of China … then this constructive risk environment can continue for the next three or so months at least,” Investec’s Taberer said.

The litmus test for assets will be whether credit rating agencies decide to downgrade debt. A cut from Moody’s would mean a loss of its investment grade status and possible ejection from the prestigious World Government Bond Index (WGBI).

“Such an ejection would represent possibly the most dramatic outcome of a ratings downgrade and should be South Africa’s biggest cause for concern,” Citadel chief strategist Adrian Saville said.


(By Stella Mapenzauswa. Editing by James Macharia and Louise Ireland)

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South Africa to borrow $4.5 billion from international markets – Treasury

Comments (0) Africa, Latest Updates from Reuters, Politics

CAPE TOWN (Reuters) – South Africa will borrow $4.5 billion from international markets over the medium term with government debt set to rise to nearly 2.4 trillion rand by 2018/19, the National Treasury said on Wednesday.

New bond issuance for 2015/16 would rise to 175 billion rand, marginally up from the 173 billion rand estimated in February.

Treasury said borrowing requirement would rise over the next three years, with borrowing for 2015/16 fiscal year revised to 176.3 billion rand forecast in February’s main budget before gradually rising to reach 186.1 billion rand in 2017/18.

Treasury said it would focus on mitigating the risk of sharp increases in loan repayments, and would continue its program of switching short-dated bonds in exchange for longer-dated ones.

“Further rand depreciation and higher inflation would push up the level of debt and debt-service costs,” Treasury said.

The rand has lost over 13 percent in value against the dollar in 2015 as combination of weak domestic factors and slowing growth globally, particularly in China, have seen the unit tumble to all-time lows.

Minister Nhlanhla Nene said the rise in government debt over the next three years would amount to 600 billion rand, while stabilizing as a percentage of GDP to 49.4 percent in 2018/19.


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