One Corner of South Africa’s Market Hasn’t Caught Ramaphosa Bug

JOHANNESBURG (Capital Markets in Africa) – It seems it will take more than “Ramaphoria,” as they call it in South Africa, to spur the country’s corporate debt issuers into action.

South African assets have rallied since Cyril Ramaphosa was elected leader of the ruling African National Congress in December, setting him on a path to replace Jacob Zuma as the country’s president last month. With economic growth accelerating, inflation slowing and the new administration acting against corrupt officials, business confidence soared to a three-year high this month.

Still, bond sales by South African companies are off to the slowest start to a year since 2014 following record issuance last year, according to data compiled by Bloomberg. Companies that have held back on investment amid the political uncertainty of the past few years will want further evidence of policy continuity and economic recovery, according to Mike van der Westhuizen, a portfolio manager at Citadel Holdings Ltd. in Johannesburg.

“Corporate issuers will not be in a rush to ramp up issuance purely based on short-term sentiment,” Van der Westhuizen said. “Although confidence on the ground seems to be picking up, corporate South Africa will probably be reluctant to significantly increase capital expenditure” until the government has addressed structural challenges holding back growth, he said.

Last year, issuance reached a record 142 billion rand ($11.8 billion), a jump of about 40 percent from the previous year, according to Zoya Sisulu, the Johannesburg-based head of debt capital markets at Standard Bank Group Ltd. Total issuance this year is at 28 billion rand, down 23 percent from the same period in 2017, according to data compiled by Bloomberg.

Ample Demand
“However, most of the issuance last year was related to refinancing debt that was maturing,” she said. “It’s likely that most companies had already made calls regarding what their finance needs would be this year and acted accordingly.”

When more corporates start tapping the market, there will be ample demand from investors, according to Deutsche Bank AG.

“There is still lots of liquidity looking for a home,” said Simon Denny, South African head of corporate finance at Deutsche Bank. “On the local side, asset managers are highly interested in new issues, although the focus remains value.”

South Africa also has a sophisticated legal framework, good corporate governance and liquid capital markets, making it a “safe haven” for bond investors, Denny said.