We can expect a triple B on our investment report card, writes Simon Segal
A TEAM preparing South Africa’s country credit rating, vital for the country to be able to raise money abroad less expensively than it has done, is in the country.
The team should have a rating within the next few weeks. Most economists expect a BBB rating or, at best, an A. The very best rating, which few achieve, is AAA. BBB has been described as “a low minimum investment rating”.
South Africa is waiting for such a rating before approaching the international capital markets to raise money by issuing a large bond. Bonds are IOUs generally repaid in seven years or more, at a fixed interest rate. How much South Africa will have to pay for the money will depend on the rating, and it is not clear what repayment period South Africa is looking at.
Nor is not certain how much will be raised. The Budget sets down a figure of R1,8- billion, but the final figure and terms depend on market conditions and the rating now being organised by United States investment bank Goldman Sachs.
Talk is that South Africa will borrow between USD500-million and USD1-billion in both the US and Europe.
Electricity utility Eskom, South Africa’s largest borrower after the government, is set to follow soon after the government to raise around USD150-million in dollar- denominated bonds specifically for electrification.
This will help finance its annual R1,2-billion electrification programme that aims to provide 1,5-million households with electricity over the next five years (300 000 connections a year).
Eskom is waiting for South Africa’s country credit rating before it obtains its own corporate credit rating. US bankers JP Morgan, with whom Eskom has enjoyed a long relationship, have been appointed to undertake Eskom’s preparatory work.
US investment bankers Salomon Brothers will lead Eskom’s issue with support from Lehman Brothers and JP Morgan.
The rand equivalent of Eskom’s existing foreign debt is 59 percent dollar- denominated while 33 percent is in German marks. The debt is primarily held by private individuals in Europe.
Eskom is now looking for a greater spread both geographically and in the type of holder. Initially, the utility is pitching at US institutions for USD150-million — hence it moved its four-year-old Frankfurt office to Atlanta in August.
Locally, Eskom is soon to launch its second electrification participation note (EPN), the second component in funding its electrification programme. Last year it raised nearly R600-million from institutions in the first tranche. The utility is looking to raise slightly more than this from EPN 2.
Designed to share risk between Eskom and investors in providing a vehicle for investment in socially responsible projects, the EPN is presently the only mechanism in South Africa which offers investors the opportunity to take part directly in the country’s grand economic plan to put right the wrongs of apartheid, the reconstruction and development programme.