According to Cyril Ramaphosa, President of South Africa, BRICS stands for solidarity and for progress. BRICS stands for inclusivity and a more just, equitable order. BRICS stands for sustainable development.
The development bank founded by the BRICS countries closed the auction for its first South African rand bonds on August 16th 2023. The New Development Bank’s (NDB) two bonds, a 1 billion rand ($52.3 million) five-year note and a 500 million rand (US$26.8) million three-year note, attracted 2.67 billion rand of bids in total. The oversubscribed demand makes it likely that there will be similar issues in the future.
South Africa’s finance minister said that the NDB, which was founded to give the BRICS members – Brazil, Russia, India, China and South Africa – more control of development financing, was not doing enough local currency lending, and intended to do more in this area. Chief Financial Officer Leslie Maasdorp said that the bank aims to increase local currency lending, most of which has so far been in the Chinese yuan, from about 22 per cent to 30 per cent by 2026, but that there were limits to de-dollarization.
The South African bond market has struggled in recent years to attract new issuers to match growing demand from domestic investors looking for quality credit assets.
NDB’s three-year rand bond was priced at a floating rate of 95 basis points (bps) above the three-month Johannesburg Interbank Average Rate (Jibar), while the five year was priced at Jibar +105 bps.
The most recent comparable South African government bonds were a 4.5-year bond priced at Jibar +90 bps and a seven year priced at Jibar +120 bps, said Raphi Rootshtain, a portfolio manager at Sasfin Wealth.
“It is interesting to note that most of the underlying lending activities in South Africa are to State Owned Companies (SOEs),” Rootshtain said. “So effectively the NDB will become the new proxy funding vehicle for SOEs which should come with additional risk.”
The bond sale was arranged by Standard Bank, and ABSA Bank.The sale was well oversubscribed suggesting more rounds are imminent in other BRICS members’ economy during 2024, following the ascent of the six new members in January 2024.