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Bond Exchange of South Africa. OECD POLICY SEMINAR “How to reduce debt costs in Southern Africa” “The Development of the South African Corporate bond market, relevance, impediments, prospects” TOM LAWLESS – CEO 25 MARCH 2004. TOPICS FOR DISCUSSION. Overview of Global Corporate Bond market - PowerPoint PPT Presentation
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Bond Exchange of South Africa
OECD POLICY SEMINAR“How to reduce debt costs in Southern Africa”
“The Development of the South African Corporate bond market, relevance, impediments, prospects”
TOM LAWLESS – CEO
25 MARCH 2004
TOPICS FOR DISCUSSION TOPICS FOR DISCUSSION
Overview of Global Corporate Bond market
Overview of SA bond market
Why is our market different?
Factors effecting change
Impacts of international banks in SA bond market
Areas of concern
Ways to get markets going
Prospects
APPENDICIESAPPENDICIES
• Corporate bonds issued in last 12 Months
• Bonds in issue 1999-2003
• Bonds in issue 2/2004
• Listing fees
OVERVIEW OF GLOBAL CORPORATE BOND MARKETOVERVIEW OF GLOBAL CORPORATE BOND MARKET
CORPORATE BONDS• US and Europe – big and vibrant markets
• US > 4 million issues of bonds of all kinds – government, states, municipal, banks, mortgage backed etc.
• Corporate bonds exceed government etc in number
• Deutsche Bank spokesman
• “Daily secondary market trading in MBS is now greater than US treasuries”
• Issuance continuing
• Re-rating of some issuers
OVERVIEW OF SA BOND MARKETOVERVIEW OF SA BOND MARKET
Predominantly a government bond market – 94% of turnover in 2003 (Spot & Repo)
Very Liquid market and high velocity of circulation - some 20 times per annum
Government bonds are some 72 % maturities, corporates and public enterprises etc. make up the balance . Corporate bonds in issue have grown from 2.82% in 1999 to 16.9% in 2/2004
Bond Market Turnover (Billion Rand Nominal Traded)
Bond Market Turnover (Billion Rand Nominal Traded)
(US$ = R exchange rates, average for year)
10,655
11,67111,658
10,7989,514
9,510
2,326
4,6273,405
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,00011,00012,00013,00014,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
0.00
2.00
4.00
6.00
8.00
10.00
12.00Nominal traded (billion) US$ = R exchange rate
1995-2003
SPOT & REPO (Nominal Traded - Trillion) SPOT & REPO (Nominal Traded - Trillion)
R0
R2
R4
R6
R8
R10
R12
1998 1999 2000 2001 2002 2003
Year
BESA TurnoverRepo trades
Spot trades
Nominal Traded (trillion)
1992 - 2003
Total Bond Market Turnover Breakdown by Major Issuer (Nominal Traded)
Total Bond Market Turnover Breakdown by Major Issuer (Nominal Traded)
0%
20%
40%
60%
80%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003
RSA Transnet Telkom Eskom Other
1995 to 2003
SPOT & REPO (Nominal Traded - Trillion) SPOT & REPO (Nominal Traded - Trillion)
1998 -2003
19981999
20002001
20022003
0
5
10
15
20
25
30
Vel
ocit
y
Year
Turnover Velocity(total turnover/market capitalisation)
WHY ARE WE DIFFERENT?WHY ARE WE DIFFERENT?
COMPLEX ISSUE – MANY REASONS ADVANCED
Preference for government, parastatal and bank paper Greater risks not widely understood by trustees – particularly
employee representatives “ROE” of banks received less attention in past Banks appetite for assets – more to lend to corporates than to list Banks chasing market share in corporate finance world Illiquid secondary market :-
little / no market making activity No repo market
FACTORS AFFECTING CHANGEFACTORS AFFECTING CHANGE
Re-investment opportunities for coupon payments
More diversification in issues
• Securitisations
Banks being more innovative
• Capital better utilised elsewhere – Basle II impacts
• Better pricing of corporate loans
New portfolio managers arriving
• Differentiate from the old established firms
Easier to issue using DMTN type documentation – international banks influence
Cost of bond finance dropped dramatically
No stamp duties on issue
IMPACT OF INTERNATIONAL BANKS IN SA BOND MARKETIMPACT OF INTERNATIONAL BANKS IN SA BOND MARKET
Changed the attitudes of corporates
Banks are fee driven not annuity income driven Thus focus different – issue driven, more corporate issues
Issuance styles more towards DMTN
More comprehensive documentation – more European style
More international practice driven
AREAS OF CONCERN AREAS OF CONCERN
Very few mortgage backed securities (MBS)
Why is there no “Ginnie Mae” type operation in South Africa?
Pathetically low savings ratios
Who Is doing anything to reverse this??
Who should do it?
Illiquid secondary market:-
Little / no market making activity
No repo markets
THOUGHTS ON WAYS TO GET MARKETS GOING THOUGHTS ON WAYS TO GET MARKETS GOING
Consolidate municipal debt into more manageable and attractive
parcels
Public / private partnerships should be strongly encouraged to list
debt
Get a “Ginnie Mae” off the ground
List money market instruments
THOUGHTS ON WAYS TO GET MARKETS GOING THOUGHTS ON WAYS TO GET MARKETS GOING
Radical re-look needed at logic of taxing interest on savings
• SA savings ratio is so low
• Encourage, don’t discourage savings
List SA government currency debt here to encourage easier and
further asset diversification
• Invest in our own country in hard currency
• This is not “dollarisation of the Rand”
Invest in municipal bonds of your city
• Get a rebate on rates and taxes
PROSPECTS PROSPECTS
Very promising
Rates low – encouraging environment in which to borrow
Offshore entities allowed to list – (2004/5 – National Budget)
Municipalities – encouraged to list - (2004/5 National Budget)
• Enquiries increasing
Securitisations
Innovative ways coming to the fore
APPENDICES APPENDICES
• CORPORATE BONDS LISTED – PAST 12 MONTHS
• Corporates
• Securitisation & Dual Listings
• Programmes
• GROWTH SINCE 1999 – R’ BILLION
• TOTAL BONDS IN ISSUE
• LISTING FEES
CORPORATE BONDS LISTED - PAST 12 MONTHSCORPORATE BONDS LISTED - PAST 12 MONTHS
CORPORATES
Eagle Bonds One (Pty) Ltd R887 Million Anglogold Ltd R2 Billion Sasol Financing (Pty) Ltd R2 Billion Imperial Group (Pty) Ltd R1 Billion Lever Ponds (Pty) Ltd R2.5 Billion African Bank Ltd R1 Billion Firstrand Bank Ltd R1.3 Billion Investec Bank Ltd R1 Billion Development Bank of SA R2 Billion SBSA (Credit-linked note) R1.2 Billion Nedbank Ltd R500 Million SBSA R1 Billion Daimler Chrysler R2 Billion Steinhoff Manufacturing (Pty) Ltd R1 Billion SA National Road Agency Ltd R2.3 Billion Trans-Caledon Tunnel Authority R1 Billion
TOTAL R21.7 BILLION
continued on next slide
CORPORATE BONDS LISTED - PAST 12 MONTHS CORPORATE BONDS LISTED - PAST 12 MONTHS
Continued……..
SECURITISATIONS
AutoLoan Invest (BMW) R1.83 Billion Collaterallised Auto Receivables (ABSA) R3 Billion Equipment Rentals Securitisation (SASFIN) R670 Billion Private Mortgages “PRIV” (Investec) R1.4 Billion Thekwini Fund (SA Home Loans) R2 Billion Indwa Investment Ltd (RMB) R4.2 Billion Asset Backed Arbitrage (ABSA) R3.65 Billion Infrastructure Finance Corporate Ltd R150 Million
Total R13.25 Billion
DUAL LISTINGS
Swaziland Posts & Telecoms R41 Million
CORPORATE BONDS LISTED - PAST 12 MONTHS CORPORATE BONDS LISTED - PAST 12 MONTHS
Continued……..
PROGRAMMES
Lever Ponds (Pty) Ltd (CP) R1.5 Billion Grayson Conduit (Pty) Ltd (Investec) (CP) R10 Billion Eagle Bonds One (Pty) Ltd (DMTN) R930 Million First Rand Bank Ltd (DMTN) R5 Billion Investec Bank Ltd (DMTN) R10 Billion Nedbank Ltd (DMTN) R10 Billion Swaziland Posts & Telecommunications (DMTN) R500 Million
Total R37.93 Billion
GROWTH SINCE 1999 – R’ BILLIONGROWTH SINCE 1999 – R’ BILLION
2003 1999 Central Government R371.115 R327.106 Municipal R .091 R .984 Public Enterprises R 35.829 R 48.091 Water Authorities R 18.415 R 11.086 Banks R 30.256 R
7.149 Securitisation R 21.232 R 1.247 Other Corporates R 18.542 R 2.850 Dual Listed R .041 R - Commercial Paper R 11.300 R -
TOTAL R506.921 R398.513
CORPORATES 16.9% 2.82%
TOTAL BONDS IN ISSUE AS AT 29 FEB 2004TOTAL BONDS IN ISSUE AS AT 29 FEB 2004
Central Government R351.76 Billion Municipal R 91 Million Public Enterprises R 35.67 Billion
Water Authorities R 18.02 Billion Corporates R 82.65 Billion
Banks R 31.44 Billion Securitisation R 21.31 Billion Gold Mining R 3.2 Billion Chemical R 2 Billion Food R 1 Billion Household Goods R 1 Billion Telecommunication R 5 Billion Transport R 6.5 Billion Credit Linked Notes R 1.5 Billion Commercial Paper R 9.7 Billion
Dual Listing R 41 Million
TOTAL R488.23 BILLION
Corporates 16.9%
LISTING FEESLISTING FEES
LISTINGS FEES - (BESA FEES)
INITIAL
R10,000 - R25,000 - once off fee (dependent on complexity)
ANNUAL REVISION FEE
ISSUE SIZE BASE FEES
0 < R250m R 2 000
R250m < R1 bn R 6 000
R1 bn + nominal R12 000
LISTING FEESLISTING FEES
ANNUAL
• Comprises a base fee and a surcharge fee, payable annually
• Base fee calculated accordingly to a fixed scale (previous slide)
• Surcharge calculated accordingly to formula
• Surcharge fee = market surcharge (R) X relative size (%)
• Market surcharge amount is currently set at R1,5 million
OTHER FEES / COSTS associated with listings process
• Lawyers • Arrangers
• Road shows • Printing