SABMiller deal boosts net reserves to $42bn

Cape Town - South Africa's net foreign reserves rose to $41.953bn in September from $40.795bn in the previous month, the South African Reserve Bank (Sarb) said on Friday. 

The boost can be attributed to the SABMiller/Anheuser-Busch (AB) InBev deal, estimated to stand at $2bn for September. 

“This second tier data set should attract more attention than usual in light of the speculation around the impact of the substantial deal,” RMB said in a company note.

It is expected that the Sarb absorbed about $2bn of the estimated total of $8bn inflows resulting from the transaction. 

READ: Anheuser-Busch InBev clinches R1.4trn SABMiller deal

“This is substantially larger than the liquidity management operations up to the end of the month, but still in keeping with the broadly held view that the Sarb would be unlikely to absorb much more than a third of the flows.”

The $8bn estimate assumes that all SABMiller shareholders opted for a cash settlement, although RMB said this is at the “lower end of the range for the potential deal size”.

Foreign exchange (forex) reserves increased by $1.5bn, but when adjusted for government forex drawdowns, the net impact of forex forwards and a short-term foreign loan, the amount comes to $2bn. 

The Sarb loan of $1bn in September is however a complicating factor in the estimation as it is not a “standard liquidity-draining tool”, said RMB. 

The bank repaid its last foreign loans in June 2010 and RMB assumes it relates to “smoothing out the flows” in the light of the timing mismatch between the inflows and delisting of SABMiller, and the subsequent outflows as local asset managers take their cash offshore. 

Forex swaps increased by a net $430m, suggesting new swaps could have amounted to more than $1.0bn given the maturity structure of the swaps that were outstanding at the end of August.

The transaction period ends on October 10, which means the Sarb could absorb a further $1.2bn. This means it could have absorbed a total of $3.2bn – representing 40% - by October 7. 

If the Sarb’s loan is related to the SABMiller deal, the $1bn will not be a “permanent feature” in the central bank’s reserves position, said RMB. 

The bank’s reserves position will further benefit from the recently issued SOAF bond proceeds, which amounted to $3.0bn. 

“If we factor all of this into the numbers, then we expect forex reserves to increase to $41.2bn at the end of October, which would be the highest level since December 2014,” RMB said. 

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