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Stabilised SOEs spell good news

02 May 2018



SA’s equity and debt capital markets could be in for another bumper year, as stabilised state-owned enterprises (SOEs) seek funds and the JSE welcomes new listings.


The South African National Roads Agency (Sanral) issued nongovernment guaranteed debt for the first time in six years, with a R500m private placement in the first quarter, said Conway Williams, head of listed credit at Futuregrowth Asset Management.

Eskom had raised R5bn through a private placement, while the Land Bank issued R2bn in listed debt, Williams said. "There is quite a bit of positive sentiment that has built up in the market, following changes in the perception of governance at SOEs," he said.

Total listed credit issuance amounted to R31bn in the first quarter, which was 4% behind the first quarter of 2017 and driven largely by bank issuance.

Under President Cyril Ramaphosa, leadership has been stabilised at SOEs, while former finance minister Pravin Gordhan’s appointment as public enterprises minister in March has further reassured investors.

Government guarantees

While Sanral’s nonguaranteed placement is noteworthy, it represents a fraction of the R466bn of government guarantees in place for SOE debt, R38.9bn of which belongs to Sanral and R350bn to Eskom.

Futuregrowth, SA’s largest specialist fixed-income manager, with R180bn in assets, engaged extensively with the agency in 2017 over its governance structures and independence. This followed Futuregrowth’s decision to suspend lending to the country’s six largest SOEs in August 2016 over concerns relating to corporate governance. This move appears to have paid off.

Eskom, which had secured R20bn in short-term credit via a syndication of local lenders, was not yet ready for a public bond auction, said Williams.

Pricing terms were unlikely to be favourable, considering lingering concerns over the utility’s liquidity challenges and the need for its turnaround strategy to take effect. S&P Global Ratings and Fitch Ratings downgraded Eskom’s bonds to junk earlier in 2018, even as the sovereign averted having its rand-denominated bonds junked by Moody’s Investors Service. SA’s equity capital market, meanwhile, could repeat its record-breaking 2017 performance, said Kevin Latter, joint senior officer for JP Morgan SA.

In 2017 some R143bn worth of issuance was driven by the Barclays Africa sell-down, Steinhoff Africa Retail’s initial public offering and Sibanye Gold’s rights offer. Expected JSE listings, such as those of consumer goods manufacturer Libstar and Vivo Energy, which will list on the London Stock Exchange with a secondary listing in SA, boded well for 2018, Latter said. "It’s unclear whether Vivo Energy would have inwardly listed on the JSE 12 months ago," he said, citing the change in investor sentiment towards SA. following leadership changes.

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SANRAL / Conway Williams / Eskom / SOEs / SOE