Renee Bonorchis | From Bloomberg
South Africa’s biggest lenders are still paying for last year’s collapse of African Bank Investments Ltd.
A composite yield for senior bank debt versus benchmark rates, which jumped after the unsecured lender’s failure in August, has kept climbing and is now more than 50 percent higher from a year ago, according to Standard Bank data. With 40 billion rand ($3.4 billion) of bonds maturing this year, borrowing costs for the nation’s banks are set to rise as they roll over their debt, according to Standard Bank research.
“Higher spreads may be here to stay,” Steffen Kriel, a Johannesburg-based credit analyst at Standard Bank, said via e- mail on Thursday. “There appears to be sufficient appetite for both senior and subordinated bank paper but at significantly wider spreads post-Abil,” he said, using the name by which the bankrupt lender is known.
Sales of corporate debt slowed and yields rose following Abil’s failure, which prompted Moody’s Investors Service to cut the creditworthiness of South Africa’s banks in August. Investor concern is also being fanned by proposed legislation that may dilute the rights of some bondholders. Spreads on senior debt issued by lenders reached 140 basis points for five-year debt in January, from as low as 85 basis points for three-year notes a year ago, according to Standard Bank, the nation’s biggest lender by assets.
African Bank’s collapse prompted the South African Reserve Bank to appoint an administrator to separate the good loans from the bad, and plan for an initial public offering for the so- called performing assets. Lawmakers are considering rules giving administrators of failed lenders the right to sell their assets and liabilities and change their capital structures without consulting investors.
Standard Bank has sold 5.75 billion rand of bonds this year, while Barclays Plc’s South African unit issued 2.5 billion rand and Nedbank Group Ltd. offered 5.4 billion rand. Yields on Standard Bank’s 9.71 percent securities due January 2030 climbed 59 basis points to 10.09 percent since they started trading on Jan. 29.
“African Bank was the first large-scale credit event in our market,” Bronwyn Blood, a money manager at Cape Town-based Cadiz Asset Management, said by e-mail on Feb. 10. “There is bound to be risk aversion to anything other than government paper as a result.”
Bank issuance peaked in 2012 at 60 billion rand, dropping to less than 40 billion rand in 2013 and reaching 48.8 billion rand last year. The lenders are expected to issue 50 billion rand this year, according to Standard Bank. Total corporate bond sales will probably rise 5.6 percent to 115.5 billion rand.
Nedbank will sell more bonds this year than it did in 2014 and intends to refinance maturing securities, depending on market conditions, according to Bruce Stewart, head of debt origination at the Johannesburg-based lender.
South Africa’s four largest banks, which all have more capital than regulators require, are also using bond sales to lengthen their debt maturity profiles. This will help them meet the required Basel III net stable funding ratio, a rule aimed at limiting banks’ reliance on volatile short-term borrowings.
“The impact of the African Bank curatorship is still evident within the local market,” Barclays AfricaGroup Ltd. said in an e-mailed response to questions on Feb. 11. “Higher premiums will likely persist
