Pioneering South African Rand Bonds Released by BRICS Bank Amid Local Lending Pressure

The New Development Bank (NDB), initiated by the BRICS nations, has finalized the auction of its groundbreaking South African rand bonds. This move aligns with the growing call for increased local currency fundraising and lending efforts.

Key Points:

• Diversifying Financing: The bank’s venture into rand bonds indicates a strategic pivot toward diverse currency funding.
• Local Currency Lending: The NDB has faced criticism for not amplifying its local currency lending, primarily from South Africa.
• Market Demand: The South African bond market has seen a deficit of new issuers, despite rising demand for high-quality credit assets.

The Bonds and the Bids

The bank has successfully issued two bonds: a five-year note valued at 1 billion rand ($52.3 million) and a three-year note worth 500 million rand. These bonds garnered substantial interest, pulling in an impressive 2.67 billion rand in bids, as per sources who participated.

Local Lending Concerns

The finance minister of South Africa expressed concerns about the NDB’s current lending practices. Despite its foundation being rooted in offering BRICS nations greater autonomy in development financing, the bank has allegedly not bolstered its local currency lending sufficiently. Interestingly, Chief Financial Officer Leslie Maasdorp acknowledged the institution’s goal to escalate local currency lending – predominantly carried out in the Chinese yuan – from approximately 22% to 30% by 2026. However, he did emphasize certain restrictions to this de-dollarization process.

Comparison and Implications

While the bond market in South Africa has faced challenges luring new issuers, the NDB’s bonds have positioned themselves competitively. Their three-year rand bond was established with a floating rate of 95 basis points (bps) above Jibar, and the five-year bond was pegged at Jibar +105 bps. According to Raphi Rootshtain from Sasfin Wealth, these bonds compare closely with recent South African government bonds. Furthermore, Rootshtain pointed out that the NDB is poised to become a pivotal funding medium for South Africa’s State Owned Companies, which might bring additional risks.

The Bond Sale Arrangement

Instrumental in the bond sale were Standard Bank and Absa Bank. Kumeshen Naidoo, head of debt capital markets at Absa, highlighted the exceptional response the sale garnered, with 94% of the bids aligning within or below the stipulated price guidance.