South Africa to see growth in corporate bond issuance, says Moody's

By Reshmi Basu

New York, Nov. 2 - South Africa's emerging bond market is likely to see strong growth in corporate bond issuance along with an improvement in the overall credit quality of corporate issuers, according to Moody's Investors Service, in a new special commentary on the country's corporate bond market.

The total volume of corporate debt and debt issued by government-related issuers has almost doubled since 2000. The volume of bonds listed on the Bond Exchange of South Africa reached ZAR80.4 billion by the end of September, compared with ZAR41.2 billion in 2000, according to the agency.

Government bonds continue to make up the majority of issues listed on the exchange, but Moody's noted that bonds backed by corporates and financial institutions as well as asset-backed bonds represent a steadily growing proportion.

"Moody's expects further strong issuance, from both repeat and first-time issuers, as the market develops further and more corporates tap the debt capital markets," said Reynold Leegerstee, Moody's country manager for South Africa, in a news release.

Furthermore, the relaxation of foreign exchange controls restricting the repayment of offshore loans with onshore funds will allow corporates to find viable financing in offshore bond markets, Moody's added.

The rating agency also predicts an overall improvement in corporate credit quality, propelled by accelerating domestic economic growth against the backdrop of declining interest rates and lower inflation.

Moody's highlight risks specific to South Africa, such as the uncertainty over current market growth rates, the volatility of the South African rand, the continued frequency of short-term uncommitted liquidity sources and the lack of immediate avenues for business diversification for corporates.

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