BRICS New Development Bank Issues First South African Rand Bonds
The BRICS New Development Bank (NDB) completed the auction for its first South African rand bonds on Tuesday (August 15) as it boosts its local currency fundraising and lending.
The NDB’s two bonds, a 1 billion Rand (US$52.3 million) five-year note and a 500 million Rand three-year note, attracted 2.67 billion rand (US$136 million) of bids in total, according to auction results shared by two of the investors, according to Reuters. The bond sale was arranged by Standard Bank and Absa Bank.
Enoch Godongwana, South Africa’s finance minister said that the NDB, which was founded to give the BRICS members – Brazil, Russia, India, China and South Africa – more control of development financing, was not doing enough local currency lending.
NDB’s Chief Financial Officer Leslie Maasdorp stated that the bank aims to increase local currency lending, most of which has so far been in the Chinese Yuan, from the current 22%, to 30% by 2026, but that there were limits to de-dollarisation.
The South African bond market has struggled in recent years to attract new issuers to match growing demand from domestic investors looking for quality credit assets. NDB’s three-year rand bond was priced at a floating rate of 95 basis points (bps) above the three-month Johannesburg Interbank Average Rate (Jibar), while the five year was priced at Jibar +105 bps.
The most recent comparable South African government bonds were a 4.5-year bond priced at Jibar +90 bps and a seven year priced at Jibar +120 bps.
Raphi Rootshtain, a portfolio manager at South Africa’s listed Sasfin Wealth, commented “It is interesting to note that most of the underlying lending activities in South Africa are to State Owned Companies (SOEs). Effectively the NDB will become the new proxy funding vehicle for SOEs which should come with additional risk.”
Kumeshen Naidoo, head of debt capital markets at Absa Bank said that “The sale had 94% of bids being within or lower than price guidance, while the issuance rates represented the tightest spreads achieved by a non-government issuer in 2023.”
The annual BRICS summit will be held in Johannesburg on August 22.
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