BRICS's NDB completes issues first South African Rand bonds

The New Development Bank (NDB), established by the BRICS nations - Brazil, Russia, India, China, and South Africa - has successfully concluded its inaugural auction of South African rand-denominated bonds. 

This move comes as the bank faces growing pressure to enhance its fundraising and lending endeavours in local currencies.

Investors demonstrated robust interest in NDB's bond issuance, which consisted of two offerings: a five-year note worth 1 billion rand ($52.3 million) and a three-year note worth 500 million rand. Combined, these offerings garnered bids totalling 2.67 billion rand, as reported by two investors who shared the auction results with Reuters.

NDB to strengthen development financing for BRICS members

South Africa's finance minister highlighted the need for greater local currency lending by the NDB. In an interview with Reuters ahead of the upcoming BRICS summit in Johannesburg, he emphasised that the bank's objective was to strengthen its role in development financing for BRICS members.

Despite inquiries from Reuters, the NDB has refrained from providing comments on the outcome of the bond auction.

Leslie Maasdorp, Chief Financial Officer, NDB articulated the bank's aspirations to elevate local currency lending. Currently centred predominantly on the Chinese Yuan, the bank aims to increase the share of local currency lending from approximately 22 per cent to 30 per cent by the year 2026. Maasdorp acknowledged, however, that certain limitations exist in the process of reducing reliance on the US dollar.

NDB’s exposure to state-owned companies

The recently priced NDB three-year rand bond adopted a floating rate set at 95 basis points above the Johannesburg Interbank Average Rate (Jibar) for a three-month period. Simultaneously, the five-year bond was priced at Jibar +105 basis points.

Reflecting on comparable South African government bonds, Raphi Rootshtain, a portfolio manager at Sasfin Wealth, pointed out that a 4.5-year bond was priced at Jibar +90 basis points, while a seven-year bond was priced at Jibar +120 basis points. Rootshtain noted the significant involvement of the NDB in lending activities to State-Owned Companies (SOEs), which introduces additional risk factors to the bank's operations.

The bond issuance was orchestrated by Standard Bank and Absa Bank. Standard Bank declined to comment, while Absa Bank did not respond to requests for comments on the matter.

(With Reuters inputs)