Brics bank taps its strong credit rating to launch rand bonds
The New Development Bank (NDB) — popularly known as the Brics bank — will make use of its strong credit rating to launch a rand bond programme which will enable it to provide funding for SA public entities. This could then be on-lent at a competitive rate, its Africa regional head Monale Ratsoma said in an interview last week.
The bank has also extended a $300m line of credit to the Development Bank of Southern Africa (DBSA) in what will be the third loan arrangement with an SA public entity.
The Brics bank was established in 2013 with R2bn paid in capital from each of the five member countries to mobilise resources for infrastructure and development, as an alternative to the IMF and World Bank. In August it was awarded the second-highest credit rating — AA+ — by agencies Fitch and S&P. It has pledged that its first loans will be to member states for renewable energy projects.
The loan to the DBSA, which will be drawn on when necessary, will be used to lend-on "for renewable energy projects as well as other projects that will reduce greenhouse emissions within SA", said spokesperson Sebolelo Matsoso.
The DBSA is also an infrastructure bank, lending to municipalities and state entities such as Eskom for capital projects.
Ratsoma said that the intention was to use the strong credit rating to raise money at a lower cost than could be done by public entities in SA in their own right, most of which hold the same or lower rating than the SA sovereign. Only Moody’s still rates SA’s sovereign debt as investment grade at Baa3 while Fitch and S&P have it in noninvestment territory.
"We hope to utilise the rating strength of the NDB to raise money in a more cost-effective way. The DBSA should then be able to competitively on-lend to its clients. We also want to use the rating strength to issue a rand bond. Regulatory processes with the JSE and SA Reserve Bank towards that are fairly advanced," said Ratsoma.
The size of the bond programme would depend on the appetite in the market, which was still being assessed, he said.
The Brics bank’s two other loans to SA entities include one to Transnet for $200m for the deepening of the Durban container port and a $180m loan to Eskom for the strengthening of the transmission grid to facilitate the connection of renewable energy power producers.
The Eskom loan, which was sanctioned by the Brics bank board more than two years ago but held in abeyance, was back on track, Ratsoma said.
"As soon as it became clear [in April] of the direction government had decided to take on, the independent power producers negotiations resumed. As it is, the first loan between SA and the NDB it will form a very useful template, so it is taking some time to finalise," Ratsoma said.
The Brics bank hopes to reach between $10bn and $15bn of loans by 2021. However, it remains tiny in comparison to the IMF, which makes provision for "special drawing rights" for its 180 member countries, equivalent to $300bn in value.
But developing countries, SA among them, have been reluctant to draw on IMF funding due to the conditionalities attached.
Correction October 3 2018
This story was corrected to reflect the amount of $300m in the synopsis.