(7¶ S MEASURE UP IN AFRICA€¦ · #Gupta Leaks start concerns Cabinet reshuffle S&P LC dowgrade...

LET’S MEASURE UP IN AFRICAAnnual Investment Conference

Cape Town | 26 July 2018

Structure of the SA fixed income market

Source: JSE, RMB Global Markets, data as at June 2018

1,833

530 370 310 293

180 111 100 71 70 70 40 37 96

0

400

800

1,200

1,600

2,000

Go

vt s

ecu

riti

es

Ban

k N

CD

s

Ban

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eb

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Trea

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bill

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SOE

s an

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un

is

Un

liste

d d

eb

t se

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ties

Co

rpo

rate

CP

an

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on

ds

Pre

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are

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cts

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Ban

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ion

s

Pro

mis

sory

no

tes

Secu

riti

sati

on

s

Oth

er in

stru

me

nts

Rbn Debt instruments outstanding

59% Public sector

26% Banking sector

Sovereign

67%

SOEs

11%

Municipal

1% Corporates

4%

Banks /

Financials12%

Other/

Structured3%

CLNs

1%ABCP

0%Securitisations

1%

JSE listed debt by value

* 1995 – 2018 change

Source: OECD, SARB, ABSA Capital Source: SARB, ABSA Capital

Can SA repeat fiscal consolidation like we saw in the late 90s?

BETTING ON DURATION?

“There is no compelling evidence that anyinvestor can consistently make superiordirectional calls. That is one reason why manyfixed-income portfolio managers are assignedtight [modified] duration constraints”

CFA LEVEL III CURRICULUM, 2018

ONE MONTH OF THE R186

• Duration: “Shift” is significant

Source: CIPM Expert and Vunani Fund Managers

10 YEARS OF THE ALBI• No wonder it’s called “fixed interest”

Source: CIPM Expert and Vunani Fund Managers

ATTRIBUTION OF A GIPS COMPOSITE V ALBI• Geometric alpha fully accounted

Excluding once-off issues, the residual equals an accurate estimate of all-in implementation costs (which could contribute positively)

Bonds do default

Bonds lose money through credit spread widening

The non-government market: issuance and spreads

Source: JSE, RMB Global Markets, data as at July 2018

37.3 48.2 64.5 55.8

73.6

18.5

56.0

26.2 21.2

17.4 21.1

37.0

14.9

27.0 30.8 30.6

32.1 30.2

15.0

15.0

0

25

50

75

100

125

150

2013 2014 2015 2016 2017 2018 YTD 2018 (F)

Banks/Financials Corporates SOEs Municipal Securitisations Inward listingsRbn

???121

53.5

110 111

128142

50

100

150

200

250

300

350

Jan-13 Feb-14 Mar-15 Apr-16 May-17 Jun-18

bp Financial senior Financial subordinated Inward Corporate SOEs

FLOATING-RATE BONDS

LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE

Market reform: JSE equity listings rules: Director disclosures


Call a meeting – not that easyUsing Umgeni as an example

Current

• Balance of power skewed towards the

issuer

• Register of noteholders impossible to

get

• 21 calendar days between notice and meeting

• 25% of noteholders can call/requisition a meeting

• Adhoc information received prior to a meeting

• Adequate time needed by investors to analyse the information

Proposed

• Issuer appoints a Compliance Agent who has a duty of care to noteholders

• Compliance Agent has right to call for register of noteholders

• 10 business days between notice and meeting

• 10% of noteholders can requisition a meeting. (Practically impossible for 25% of noteholders to call a meeting with no access to the register.)

• Standardising information requirements - SENS

• Information provided timeously


Something really goes wrongUsing PPC as an example

Current

• Issuer controls the meeting

• Noteholders have to get legal advice individually

Proposed

• Compliance agent acts as first chairperson of meeting

• Noteholders to appoint legal advisors (paid by the issuer) (this is the norm for bi-lateral loan agreements)


Disclosure and reporting

15

• What should be disclosed, when and how:Disclosed on SENS at the time of the event:

• All board and sub-committee member changes and reasons for change.

• New board and sub-committee appointments:

details of CV, experience,

any identified conflicts,

results of probity checks.

• Current and previous director and executive dealings with the company.

Annual disclosure (website, integrated annual report):

• board and sub-committee nomination and appointment processes and who the decision-makers are;

• Board and sub-committees: charter, ToR, Mandate, Quorum, Decision-making requirements, decision-making authority levels and any changes.

• conflicts of interest policy and PEP policy: the application thereof, deviations, remedial action and any changes.

• Lending: loans made to PEPs, directors and management.

• Procurement: contracts concluded with PEPs, directors and management.


Information, information, informationIntergrated Annual Report, SENS, website

https://www.idc.co.za/images/DISCLOSURE_OF_IDC_FUNDED_BUSINESS_PARTNERS_FOR_FIRST_QUARTER_OF_2017_FINANCIAL_YEAR1_-_BZ_003.pdf

Source: OECD, SARB, ABSA Capital

Is the current inflation target appropriate?

INFLATION FORECASTS IN SOUTH AFRICA

0

2

4

6

8

10

12

14

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Sep

-16

Mar

-17

Sep

-17

Mar

-18

Sep

-18

Mar

-19

Sep

-19

Mar

-20

Target Expected one year prior (Q) Expected two years prior (Q) Actual CPI (M)

Percentage of time actual CPI within target = 55%

Source: BER and Vunani Fund Managers

Source: OECD, SARB, ABSA Capital

Political events, ZAR and rates: How much “Ramaphoria” is still in prices?

Credit concerns: The case of Eskom

0

200

400

600

800

Jul-15 Feb-16 Sep-16 Apr-17 Dec-17 Jul-18

bp 6.75% 2023 (USD) 5.75% 2021 (USD) 7.125% 2025 (USD) SOAF 5.875% 2022 (USD)

Nenegate

Liquidity concerns#Gupta Leaks start

Cabinet reshuffle S&P LC dowgrade

State of Capture report released

Restructuringspeculation

0

30

60

90

120

150

180

Jan-13 Mar-14 Apr-15 May-16 Jun-17 Jul-18

bp ES15 ES18 ES23 ES26 ES33 ES42 ESFR03

SA government raises funds for R23bn cash injection

Futuregrowth on corporate governance in SOEs

Liquidity concerns


Being a responsible investor... get beyond “ESG”

Environmental

Management

Social

Alignment

Governance

Culture

Operational

Strategic

Market/

Competitive

Financial


Sovereign debt & contingent liabilitiesPoor SOE management holds a significant risk to the debt/GDP ratio

Government bond yields and term premiums

Source: iress, RMB Global Markets, data as at 20 July 2018

0.0

1.0

2.0

3.0

4.0

6.0

7.0

8.0

9.0

10.0

11.0

2012 2013 2014 2015 2016 2017

%% SAGB 10-y generic UST 10-y generic (RHS)

Nene gate

0

50

100

150

200

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017

bp UST 10y/2y (bp) R186/R207 (bp)


Eskom governance self-assessment?

2017 Eskom Integrated Annual Report

2016 Eskom Integrated Annual Report


SOE pricing and issuance trendsLandbank and DBSA reap the benefits

3y 5y 1y 3y 5y 1y 3y 5y 1y 3y 6 month 1y 3y 5y 1y 3y

Volumes

Target issuance size

Number of participating bids 11 9 12 22 33 9 6 12 17 11 6 25 10 10 10 10

Bids received (R'mn) 553 283 1199 1337 2553 1138 614 1270 1046 971 466 2497 580 920 1015 1337

Bids allocated (R'mn) 523 233 331 243 426 500 245 1270 439 741 366 1232 261 795 576 230

Bid cover (x) 1.06 1.21 3.62 5.50 5.99 2.28 2.51 1.00 2.38 1.31 1.27 2.03 2.22 1.16 1.76 5.81

Spreads

Pricing guidance (bps) 180-195 270-285 120-130 165-175 240-255 90-120 130-150 190-230 90-100 135-145 60-70 90-100 130-145 160-175 85-100 125-140

Clearing spread (bps) 190 285 115 155 255 110 149 215 95 145 68 95 130 160 90 130

Aug-17

Up to R1bn

Aug-16

DBSALand Bank

Up to R1bn

Feb-17 Mar-17Mar-17 Aug-17 Mar-18

R750m R750m up to R1bn R1.5bn up to R2bn


PPCBond redemption

Holdings of government bonds: The role of foreign investors

8.6 10.4 12.8 13.821.8

28.635.9 36.4 36.0 32.4 36.0

41.4 41.414.0

16.318.0 18.3

17.716.9

17.0 14.6 14.6 17.617.8

15.0 15.844.8

46.443.9 39.9

36.5 33.325.2

29.2 31.7 30.6 28.3 26.6 26.1

0

20

40

60

80

100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 May-18

%

Non-residents Banks Insurers

Local pension funds Other financial institutions Other

Source: National Treasury, RMB Global Markets

(7¶ S MEASURE UP IN AFRICA€¦ · #Gupta Leaks start concerns Cabinet reshuffle S&P LC dowgrade...

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