Most Read Contributor in South Africa, September 2016
As the South African capital market remains relatively insulated
from the financial woes of the developed nations, it is likely that
there will be a significant uptick in foreign investment as
investors seek out real returns.
This is according to Clinton van Loggerenberg, Director at ENS
(Edward Nathan Sonnenbergs), who says that there is currently lots
of opportunity for companies to bring their products into the South
"Offshore investors are desperate to do something with
their money, apart from keeping it in euros or dollars, where the
returns are very low and the risks are increasingly high.
Meanwhile, emerging markets offer the opportunity to get real
returns. The South African market remains buoyant on the debt side
- there is therefore cash available for investment and many
companies are coming to the South African market and issuing
bonds," he says.
According to van Loggerenberg, further interest in the local
market is being generated as South Africa continues to be insulated
from the financial crisis unfolding throughout Europe. "We are
seeing lots of new issues and foreigners are definitely asking more
questions about the possibility of bringing their offshore products
to South Africa and listing them on the local market. People are
recognising the potential opportunities in well-regulated emerging
markets," he says. Furthermore, according to van Loggerenberg,
South Africa has a highly regarded and mature debt capital
"The local market is very well established and, since 1997,
has developed a good track record. In particular, the JSE has
scored very highly in international rankings for its regulation
which allows for seamless integration into the local market,"
he says. According to van Loggerenberg, the settlement systems used
in South Africa are also well-regarded, further enticing foreign
attention. "The documentation used in South Africa is based on
European market standards and is therefore fairly familiar to many
foreign investors who may be struggling to raise funds in their
local markets," he says.
"This gives South Africa the competitive advantage in a
sense. I think that, as long as the rand remains relatively stable,
we will see a few issues that do very well in the near future. This
will likely lead to further issues and will serve to refocus the
spotlight on the opportunities in the South African capital
market." He says that although the regulations facilitating
inward listings of debt products have been in place for some time,
offshore investors are only now seriously starting to look at the
possibility of inward listing.
Van Loggerenberg says that in spite of the current opportunities
in the market, South African banks are still at a disadvantage
compared to their international counterparts when it comes to
offering covered bonds. A covered bond is a bond that is secured by
a security interest over specified assets on the balance sheet of
According to van Loggerenberg, covered bonds are very popular
instruments used for liquidity management by banks offshore.
"However, South African banks are not allowed to offer covered
bonds which places them at a disadvantage to international
competitors. Some market participants have expressed concern that
holders of covered bonds enjoy a preference over depositors and
unsecured bond holders, but it is in the interests of the markets
that banks be encouraged to diversify their sources of funding. It
may just be a question of setting appropriate limits on the
percentage of assets over which a bank may offer security pursuant
to a covered bond issue. I believe the time is ripe to reopen this
discussion," he says.
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