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Barclays Africa debt sale misses target as lenders rush to issue

Bank raises less than half of R1.5 billion offered.

Barclays Africa Group sold less than half its target in a bond auction as a wall of debt issuance by South African banks and the impending exit of its UK parent, Barclays Plc, damped demand.

Barclays Africa offered R1.5 billion ($113 million) of notes on Monday but raised only R642 million within price guidance, according to Deon Raju, head of treasury at the Johannesburg-based lender. The debt was priced at a spread of 378 basis points more than the benchmark three-month Johannesburg Interbank Agreed Rate. This compares with R2.15 billion of private placements at a spread of 400 basis points during the second half of last year, he said.

South African banks have raised R17.1 billion of debt this year, more than double the R7.8 billion in the comparable period last year, to comply with new rules under the Basel III global reforms that require lenders to hold more liquid and long-term capital. The pending sale of London-based Barclays’s remaining stake in Barclays Africa added to investor concern, according to Kagiso Asset Management.

“There is a lot of bank paper being issued at the moment as banks prepare for Basel III,” said Gavin Wood, chief investment officer at Johannesburg-based Kagiso. “The Barclays sell-down is an incremental negative and clearly Barclays Africa didn’t want to move much on pricing so issued less.”

Separation Anxiety

Barclays announced plans a year ago to reduce its stake in the South African lender as increased regulation in the UK market made holding the asset more expensive. Having sold more than 12% of Barclays Africa in May, the parent company now holds just over 50%. When presenting its full-year results last month, the British company didn’t say when or how it would sell more shares.

The “divorce” is a concern and Barclays Africa shouldn’t be used as a proxy for the appetite for corporate debt because demand for quality paper remains robust, said Conway Williams, head of listed credit at Futuregrowth Asset Management in Cape Town. Bank issuance has risen, with R15 billion of sales expected in March, because of bond redemptions, significant spread tightening and pent up demand from investors, he said.

Lenders including FirstRand took to selling more bonds in private placements from late last year to meet demand and benefit from declining borrowing costs. Appeals from smaller investors who also sought debt prompted Barclays Africa and Nedbank Group to sell notes publicly this month. Nedbank’s sale was priced at three-month Jibar plus 380 basis points.

During the second half of last year the majority of Barclays Africa’s subordinated debt was raised via private placements, which may have “cannibalised appetite from a handful of larger accounts in terms of limits,” Raju said. The crowded issuance calendar also weighed on demand, he said.

“We are happy that we achieved a diverse order book from the smaller investors and obtained tighter spreads,” he said. “The general feedback on volume was that one or two of the asset managers are staying on the sidelines for now.”

© 2017 Bloomberg

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