Govt raises R74 billion in its biggest-ever Eurobond sale

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South Africa raised $5 billion (R74 billion at current exchange rates) in its biggest Eurobond sale to date, offering returns that compensated investors for increasing fiscal problems.

The deal on Monday was split between a $2 billion 10-year tranche and $3 billion of 30-year notes, yielding 4.85% and 5.75% respectively.

Average yields on South Africa’s dollar bonds fell 163 basis points between the start of the year and early September to 4.7%, according to JPMorgan Chase & Co.’s indexes, amid a dovish turn by global central banks. Since then they have climbed to 4.98% as concern mounts over the financial burden of highly-indebted state companies such as Eskom.

“Over the last few weeks, South African external bonds have underperformed versus peers, so the cheapening up should raise sufficient interest to compensate for the increasing fiscal concerns,” Trieu Pham, a strategist at ING Groep NV in London, said before the Eurobond sale was completed.

The initial price talk was around 5.25% for the 10-year offering and 6.125% for the longer securities.

South Africa last came to the Eurobond market in May 2018, issuing $2 billion of 12- and 30-year debt. Yields on the latter rose 1 basis point to 5.58% on Monday.

The government’s 2019 budget stipulated that it would raise the equivalent of $2 billion on international capital markets. A further $2 billion is outstanding from the 2018-19 fiscal year.

- With assistance from Maciej Onoszko, Prinesha Naidoo and Sydney Maki.

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