22/08/2023
BRICS bank raises $78mn in first South African bond auction
A bank established by the BRICS group of emerging economies raised about $78mn at the close of the auction of its first South African bonds on August 15, according to reports.
The Shanghai-headquartered New Development Bank (NDB) is jointly owned by the BRICS members (Brazil, Russia, India, China and South Africa).
Reuters wrote on August 15 that the two bonds, a ZAR 1bn ($52.3mn) five-year note and ZAR 500mn ($26mn) three-year note, attracted ZAR 2.67bn ($140mn) of bids in total, according to auction results shared by two investors.
Standard Bank and Absa Bank arranged the sale.
The sale "had... 94% of bids being within or lower than price guidance and the issuance rates representing the tightest spreads achieved by a non-government issuer in 2023," Kumeshen Naidoo, head of debt capital markets at South African bank, Absa told the news agency.
The NDB allocated 71% to institutional investors and the rest to local banks, Bloomberg said.
"NDB is seeking to increase its presence in the local capital markets of its member countries, to fund its robust portfolio of local currency loans," said Leslie Maasdorp, NDB’s chief financial officer. "The proceeds will be used to fund infrastructure and sustainable development projects in South Africa."
The BRICS group, which will hold a summit in the African nation on August 24, formed the NDB in 2014 to give the member states greater control of development financing.
NDB's three-year 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 at Jibar +90 bps and a seven-year instrument priced at Jibar +120 bps, said Raphi Rootshtain, a portfolio manager at Sasfin Wealth.
"It is interesting to note that most of the underlying lending activities in South Africa are to state-owned companies (SOEs)," Rootshtain told Reuters. "So effectively the NDB will become the new proxy funding vehicle for SOEs which should come with additional risk."
