BRICS bank’ issues first SA rand bonds

BRICS bank' issues first SA rand bonds

The New Development Bank Boosts Local Currency Fundraising and Lending

Johannesburg, Aug 15 (ANBLE) – The development bank founded by the so-called BRICS countries closed the auction for its first South African rand bonds on Tuesday, as it comes under pressure to boost its local currency fundraising and lending.

The New Development Bank (NDB), established by Brazil, Russia, India, China, and South Africa, recently concluded its first auction for South African rand bonds. This move comes in response to mounting pressure for the bank to enhance its local currency fundraising and lending activities. With a goal of granting the BRICS members greater control of development financing, the NDB aims to increase its local currency lending, which has predominantly been in Chinese yuan, from approximately 22% to 30% by 2026.

Traditional sources of funding for development projects often involve loans denominated in foreign currencies such as the US dollar or the euro. However, embracing local currency lending can provide several advantages. It helps to reduce currency risks for borrowers and can foster economic stability and growth within the borrowing nation. Additionally, by utilizing local currencies, the NDB can effectively support and stimulate economic development within its member countries.

The auction for NDB’s South African rand bonds attracted substantial interest, with a total of 2.67 billion rand in bids. The auction included a five-year note worth 1 billion rand ($52.3 million) and a three-year note worth 500 million rand. The significant demand indicates investor interest in the bank’s efforts to utilize local currency fundraising.

However, the NDB faces challenges in increasing local currency lending. Chief Financial Officer Leslie Maasdorp recently stated that while the bank aims to diversify its lending portfolio, there are limits to de-dollarization. Balancing the need for stability and managing currency risks is crucial. Nevertheless, the NDB remains committed to the goal of expanding local currency lending to support sustainable development in its member nations.

The South African bond market has experienced difficulties attracting new issuers in recent years, even as domestic investors seek high-quality credit assets. The NDB’s entry into the local bond market injects a fresh source of funding and potentially paves the way for other issuers to follow suit. This development bodes well for the growth and overall attractiveness of the South African bond market.

During the auction, the NDB priced its three-year rand bond at a floating rate of 95 basis points (bps) above the three-month Johannesburg Interbank Average Rate (Jibar), while the five-year bond was priced at Jibar +105 bps. Comparatively, recent similar South African government bonds were priced at Jibar +90 bps for a 4.5-year bond and Jibar +120 bps for a seven-year bond.

Raphi Rootshtain, a portfolio manager at Sasfin Wealth, noted an interesting aspect of the NDB’s lending activities in South Africa. He pointed out that most of the bank’s lending activities are directed towards State-Owned Companies (SOEs). Therefore, the NDB will effectively become the new funding vehicle for SOEs, carrying additional risk. Nevertheless, this presents an opportunity for the bank to have a positive impact on these companies, potentially supporting their growth and development.

The successful bond sale was arranged by Standard Bank and Absa Bank. Kumeshen Naidoo, head of debt capital markets at Absa, highlighted the notable outcomes of the auction. He mentioned that 94% of the bids were within or lower than the price guidance, and the issuance rates achieved by the NDB represented the tightest spreads achieved by a non-government issuer in 2023. This reception from the market signifies confidence in the NDB’s ability to fulfill its mission.

The New Development Bank’s inaugural issuance of South African rand bonds is a significant milestone for the bank and its member nations. It demonstrates the NDB’s commitment to local currency fundraising and lending, fostering economic stability and driving development within its member countries. As the NDB continues to advance its lending activities in local currencies, it has the potential to become a vital source of funding for development projects and contribute to sustained economic growth in the BRICS nations.

($1 = 19.1206 rand)

Sources: – ANBLE

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