At a public auction on Monday, the banking group offered R1.5bn of subordinated debt, but raised only R642m at a spread of 378 basis points above the benchmark three-month Johannesburg Interbank Agreed Rate (Jibar), said the bank’s head of treasury, Deon Raju.
The pricing was too low to consider the transaction, said Conway Williams, head of listed credit at Futuregrowth Asset Management, which manages R170bn in fixed-income assets.
The “divorce” with its UK parent and what it would mean for Barclays Africa was also a consideration, he said.
In the second half of 2016, Barclays Africa raised R2.2bn at Jibar plus 400bps, said Raju. Pent-up investor demand had compressed spreads, making the debt capital markets attractive to issuers, said Williams. “We are concerned that the demand dynamic is suppressing credit fundamentals.”
SA’s big four banks and Investec had raised R16bn in debt this year, with close to R15bn worth of corporate bond sales expected for March, he said. “Bank issuances have driven the market over the past few years. There’s still very strong demand for good quality paper.”
Bank issuances have been partly to comply with Basel 3, which imposes stricter capital requirements on banks. A lack of clarity on a proposed resolution framework for financial institutions had limited appetite for subordinated debt in recent years, said Raju.
Financial regulators issued a proposed framework in August 2015, but nothing has been finalised. Prudential Investment Managers had not participated in any subordinated debt issues by banks, as it was difficult to price this debt in the absence of regulatory certainty, said portfolio manager Gareth Bern.
