The South African Reserve Bank (SARB) signed documents relating to a three-year syndicated loan transaction with a group of 39 international financial institutions in Cape Town on Monday.
The proceeds of this loan, which matures in 2007, will be used to repay a syndicated loan entered into three years ago, which had the National Treasury and the SARB as co-borrowers.
This year’s loan in the amount of $1-billion will, however, be taken out in the sole name of the SARB.
Having assembled a group of 23 leading international banks to act as mandated lead arrangers, initially committing $60-million each, the transaction was launched for general syndication on June 14 2004.
Participation levels in general syndication were $30-million for co-arrangers and $15-million for lead managers.
The SARB managed to put together a highly successful and heavily oversubscribed transaction, resulting in $1,8-billion being committed, compared with the financing requirement of $1-billion.
The SARB did not take up the excess funds offered and final participation levels were consequently scaled back for all lenders.
This substantial oversubscription bears testimony to the success of the transaction and, more importantly, reflects the sound and improving credit story of the South African economy, as reflected in the country’s credit ratings.
The strength of the SARB’s international banking relationships has once again allowed a smooth execution of the transaction, which enjoyed strong support from the market.
This remarkable level of support was secured against a background of a market increasingly characterised by lending banks generally applying more stringent criteria for granting loans. Thus the good standing of the SARB in the international financial markets is illustrated by the quality of banks that have participated, the geographic spread of the source of funds and in the pricing achieved.
The syndicated loan may be drawn down in dollars and/or euros at a margin of 47,5 basis points a year above Libor/Euribor.
This can be compared with the margin of 67,5 basis points a year that was negotiated for the comparable 2003 syndicated loan.
The significant progress achieved in recent years in reducing borrowing costs for the SARB is also reflected by the fact that at the inception of the loan being refinanced in 2001, the margin over Libor was 85 basis points a year.
Another attractive feature of the loan is a provision that will allow the SARB to automatically benefit from a lower pricing in the case of an improvement in South Africa’s credit rating.
The overall attractiveness of South Africa as a borrower was also recently demonstrated by a successful placing of a $1-billion 10-year bond by the National Treasury in May 2004. — I-Net Bridge