South Africa companies are becoming
reluctant to raise long-term funding as the country’s economic outlook
deteriorates, according to Standard Bank Group, Africa’s biggest
arranger of corporate bonds.
About 74% of corporate bonds issued
in South Africa had maturities of three years or less, compared with 42% in 2014,
Standard Bank data showed. Debt with maturities of five and seven years
dropped to 26% of total sales excluding issuance by banks, from 54% last
year.
"We’ve seen people taking a shorter-term view on funding," Standard Bank’s debt capital markets division manager, Zoya Sisulu, said on Thursday. "That’s just a demonstration of how investors are reading the market and the impact of global events on South Africa."
The economy grew by 0.7% in the third quarter, narrowly dodging a recession after contracting in the previous three months. The rebound masks a deterioration in the economy triggered by power shortages and a slump in prices of platinum, copper and other commodities. Output is forecast by the South African Reserve Bank to expand by 1.4% this year, which would be the slowest pace since the 2009 recession.
‘Corporate uncertainty’
The central bank has little room to support growth as it struggles to keep inflation inside the 3%-6% target. The Bank increased the repo rate by 25 basis points to 6.25% last week, the second increase this year. An 18% slump in the rand has not yet spurred an expected increase in exports, while unemployment is above 25%.
"We are seeing clear signs of corporate uncertainty," Standard Bank’s executive for debt primary markets, Alexi Contogiannis, said. "Issuers are nervous about committing to long-term capital. There are so many short-term challenges — labour, power, regulation — we have corporates saying, let’s just assess our short-term needs."
Corporate bond issuance including banks is forecast at R115.5bn this year, 5.6% higher than last year’s issuance of R109bn, according to Standard Bank research. About R56bn of the total will be from financial institutions, with R30bn issued by state-owned companies and R18bn by other companies.
Bloomberg
"We’ve seen people taking a shorter-term view on funding," Standard Bank’s debt capital markets division manager, Zoya Sisulu, said on Thursday. "That’s just a demonstration of how investors are reading the market and the impact of global events on South Africa."
The economy grew by 0.7% in the third quarter, narrowly dodging a recession after contracting in the previous three months. The rebound masks a deterioration in the economy triggered by power shortages and a slump in prices of platinum, copper and other commodities. Output is forecast by the South African Reserve Bank to expand by 1.4% this year, which would be the slowest pace since the 2009 recession.
‘Corporate uncertainty’
The central bank has little room to support growth as it struggles to keep inflation inside the 3%-6% target. The Bank increased the repo rate by 25 basis points to 6.25% last week, the second increase this year. An 18% slump in the rand has not yet spurred an expected increase in exports, while unemployment is above 25%.
"We are seeing clear signs of corporate uncertainty," Standard Bank’s executive for debt primary markets, Alexi Contogiannis, said. "Issuers are nervous about committing to long-term capital. There are so many short-term challenges — labour, power, regulation — we have corporates saying, let’s just assess our short-term needs."
Corporate bond issuance including banks is forecast at R115.5bn this year, 5.6% higher than last year’s issuance of R109bn, according to Standard Bank research. About R56bn of the total will be from financial institutions, with R30bn issued by state-owned companies and R18bn by other companies.
Bloomberg
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