Western Capital Markets Reopening to South Africa
LONDON -- After being shut out of Western capital markets for several years, South African borrowers have lined up major banks to underwrite $340 million in two transactions.
Last week, German investors snapped up a sovereign bond issue in Germany by the Republic of South Africa for the equivalent of $240 million.
And J.P. Morgan Securities, the London-based capital markets subsidiary of J.P. Morgan & Co., is set to manage a $100 million Eurobond deal for Independent Development Trust. This will be the first overseas securities offering in years by a South African private-sector entity, a spokesman for Morgan's U.S. parent company confirmed Tuesday.
Endorsed by Winnie Mandela
The trust, to fund needs of the underprivileged, is endorsed by Winnie Mandela of the African National Congress. Proceeds from will pay for schools, clinics, and water supplies in poor communities in South Africa.
This role is expected to defuse any criticism of the fact that Morgan, as a U.S. banking company, is handling the offering when many American states and financial institutions still bar involvement with companies doing business in South Africa.
The Republic of South Africa, after being frozen out of financial markets overseas because of sanctions for most of the 1980s, saw last week's bond issue in Germany raised from about $107 million, after heavy demand. The placement was organized by Deutsche Bank AG, Germany's largest bank.
The issue carries a coupon of 10.5% with a five-year maturity. More than 20 banks were underwriters, including some of the most prestigious names in German banking, such as Commerzbank AG and Dresdner Bank AG.
Reception to the issue was "beyond expectations," with demand extending beyond German-speaking countries, a spokesman for Deutsche Bank said in Frankfurt.
Most underwriting banks in the issue were German. But Britain's Kleinwort Benson, France's Compagnie Paribas, Swiss Bank Corp., Austria's Creditanstalt-Bankverein, and Korea Development Bank also participated.
South Africa's government intends to follow its reentry into international financial markets with a prudent funding strategy, finance department director-general Gerhard Croeser said in Johannesburg Tuesday, as quoted by Reuters news agency.
Mr. Croeser attributed the success of the German issue to the view overseas that South Africa had become distinctly underborrowed since foreign banks cut off new credits in 1985. He also mentioned the reputation for regular and reliable repayments on past debts while in the capital markets wilderness.