The Investor - Moneyweb's monthly investment magazine Issue 4 | Page 52

STEADY ISSUANCE FROM SOES The Development Bank of South Africa (DBSA) issued R75m of seven-month senior unsecured CP at a credit spread of 74bp over the three month-interbank rate, and a cumulative R1.4bn of 12-month paper at an average spread of 94.5bp. DBSA has a national scale rating of AA+ from Fitch. However, DBSA’s standalone credit profile does not warrant such a high rating for many reasons: the bank only returned to profitability in 2014, after two years of losses; the government had to pledge further capital commitments of R7.9bn in 2013 to stabilise it; it is ambitiously targeting 20% book growth (including outside SADC), which raises the spectre of future impairments; it has a concentrated credit portfolio as it is overweight government entities (municipalities and state-owned entities) and it’s overweight energy projects. The high rating reflects strong implied government support owing to its 100% ownership and the bank’s importance in fulfilling the government’s development mandate. In addition, Transnet returned to the market, raising a total of R1.5bn. On the short end, the SOE raised R115m in six-month senior unsecured CP and R385m in 52 ISSUE 4 – JULY 2015 12-month paper, with both being zero coupon instruments. Transnet also raised R1bn by tapping its longdated 2025, 2030 and 2040 bonds. WESBANK AUTO LOANS Nitro Securitisation 5 raised R2.4bn across several notes classed A to G. The transaction securitises a pool of amortising motor vehicle loans originated by Wesbank, a division of FirstRand. This is the fifth securitisation of Wesbank loans. It is interesting to note that only the Class A, Class B and Class C notes are rated investment grade, which means that many funds will be precluded from investing in the D, E, F and G notes – despite the fact that the risk of default is deemed low. EKURHULENI ADDS MUNICIPAL FLAVOUR The Ekurhuleni Metropolitan Municipality brought some life to a sluggish municipal sector, issuing R750m in senior unsecured fixed rate bonds. The bonds are amortising, with R37.5m repayable biannually until the final instalment in June 2025; this structure is a divergence from the bullet maturity profile that has previously been used by the municipalities. Debt instruments with bullet profiles required municipalities to continually put money into a sinking fund in order to reduce the refinancing risk, which was an inefficient use of cash. The amortising profile of Ekurhuleni’s latest bonds is a neater way for the metro to address its refinancing risk. The funds will be used for the city’s infrastructure requirements. Borrowing requirements over the next three years are expected to increase as the metro attempts to provide adequate housing, roads, electricity, water and sanitation to a growing population. Maintenance is another important component of municipal expenditure. Other metropolitan municipalities with outstanding listed bonds are the City of Cape Town, City of Johannesburg and City of Tshwane. Over the past few years Ekurhuleni has been the most consistent of all the metros with its term issuance, having raised debt every year since 2010. It has raised a cumulative R4.6bn to date. Ekurhuleni is rated A1 on Moody’s national scale. This is after Moody’s downgraded the rating from Aa3 in November 2014, on the back of a sovereign rating downgrade. The outlook on Ekurhuleni’s credit rating is stable, but an uncertain macroeconomic outlook, together with the anticipated i