(7¶ s measure up in africa€¦ · #gupta leaks start concerns cabinet reshuffle s&p lc...
TRANSCRIPT
LET’S MEASURE UP IN AFRICAAnnual Investment Conference
Cape Town | 26 July 2018
Structure of the SA fixed income market
Source: JSE, RMB Global Markets, data as at June 2018
1,833
530 370 310 293
180 111 100 71 70 70 40 37 96
0
400
800
1,200
1,600
2,000
Go
vt s
ecu
riti
es
Ban
k N
CD
s
Ban
k d
eb
t se
curi
ties
Trea
sury
bill
s
SOE
s an
d m
un
is
Un
liste
d d
eb
t se
curi
ties
Co
rpo
rate
CP
an
d b
on
ds
Pre
f sh
are
stru
ctu
res
Oth
er s
tru
ctu
red
pro
du
cts
Ban
k se
lf-s
ecu
riti
sati
on
s
Ban
k lo
an s
ynd
icat
ion
s
Pro
mis
sory
no
tes
Secu
riti
sati
on
s
Oth
er in
stru
me
nts
Rbn Debt instruments outstanding
59% Public sector
26% Banking sector
Sovereign
67%
SOEs
11%
Municipal
1% Corporates
4%
Banks /
Financials12%
Other/
Structured3%
CLNs
1%ABCP
0%Securitisations
1%
JSE listed debt by value
* 1995 – 2018 change
Source: OECD, SARB, ABSA Capital Source: SARB, ABSA Capital
Can SA repeat fiscal consolidation like we saw in the late 90s?
BETTING ON DURATION?
“There is no compelling evidence that anyinvestor can consistently make superiordirectional calls. That is one reason why manyfixed-income portfolio managers are assignedtight [modified] duration constraints”
CFA LEVEL III CURRICULUM, 2018
ONE MONTH OF THE R186
• Duration: “Shift” is significant
Source: CIPM Expert and Vunani Fund Managers
10 YEARS OF THE ALBI• No wonder it’s called “fixed interest”
Source: CIPM Expert and Vunani Fund Managers
ATTRIBUTION OF A GIPS COMPOSITE V ALBI• Geometric alpha fully accounted
Excluding once-off issues, the residual equals an accurate estimate of all-in implementation costs (which could contribute positively)
Bonds do default
Bonds lose money through credit spread widening
The non-government market: issuance and spreads
Source: JSE, RMB Global Markets, data as at July 2018
37.3 48.2 64.5 55.8
73.6
18.5
56.0
26.2 21.2
17.4 21.1
37.0
14.9
27.0 30.8 30.6
32.1 30.2
15.0
15.0
0
25
50
75
100
125
150
2013 2014 2015 2016 2017 2018 YTD 2018 (F)
Banks/Financials Corporates SOEs Municipal Securitisations Inward listingsRbn
???121
53.5
110 111
128142
50
100
150
200
250
300
350
Jan-13 Feb-14 Mar-15 Apr-16 May-17 Jun-18
bp Financial senior Financial subordinated Inward Corporate SOEs
FLOATING-RATE BONDS
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Market reform: JSE equity listings rules: Director disclosures
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Market reform: JSE equity listings rules: Director disclosures
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Call a meeting – not that easyUsing Umgeni as an example
Current
• Balance of power skewed towards the
issuer
• Register of noteholders impossible to
get
• 21 calendar days between notice and meeting
• 25% of noteholders can call/requisition a meeting
• Adhoc information received prior to a meeting
• Adequate time needed by investors to analyse the information
Proposed
• Issuer appoints a Compliance Agent who has a duty of care to noteholders
• Compliance Agent has right to call for register of noteholders
• 10 business days between notice and meeting
• 10% of noteholders can requisition a meeting. (Practically impossible for 25% of noteholders to call a meeting with no access to the register.)
• Standardising information requirements - SENS
• Information provided timeously
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Something really goes wrongUsing PPC as an example
Current
• Issuer controls the meeting
• Noteholders have to get legal advice individually
Proposed
• Compliance agent acts as first chairperson of meeting
• Noteholders to appoint legal advisors (paid by the issuer) (this is the norm for bi-lateral loan agreements)
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Disclosure and reporting
15
• What should be disclosed, when and how:Disclosed on SENS at the time of the event:
• All board and sub-committee member changes and reasons for change.
• New board and sub-committee appointments:
details of CV, experience,
any identified conflicts,
results of probity checks.
• Current and previous director and executive dealings with the company.
Annual disclosure (website, integrated annual report):
• board and sub-committee nomination and appointment processes and who the decision-makers are;
• Board and sub-committees: charter, ToR, Mandate, Quorum, Decision-making requirements, decision-making authority levels and any changes.
• conflicts of interest policy and PEP policy: the application thereof, deviations, remedial action and any changes.
• Lending: loans made to PEPs, directors and management.
• Procurement: contracts concluded with PEPs, directors and management.
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Information, information, informationIntergrated Annual Report, SENS, website
https://www.idc.co.za/images/DISCLOSURE_OF_IDC_FUNDED_BUSINESS_PARTNERS_FOR_FIRST_QUARTER_OF_2017_FINANCIAL_YEAR1_-_BZ_003.pdf
Source: OECD, SARB, ABSA Capital
Is the current inflation target appropriate?
INFLATION FORECASTS IN SOUTH AFRICA
0
2
4
6
8
10
12
14
Sep
-00
Mar
-01
Sep
-01
Mar
-02
Sep
-02
Mar
-03
Sep
-03
Mar
-04
Sep
-04
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
Mar
-16
Sep
-16
Mar
-17
Sep
-17
Mar
-18
Sep
-18
Mar
-19
Sep
-19
Mar
-20
Target Expected one year prior (Q) Expected two years prior (Q) Actual CPI (M)
Percentage of time actual CPI within target = 55%
Source: BER and Vunani Fund Managers
Source: OECD, SARB, ABSA Capital
Political events, ZAR and rates: How much “Ramaphoria” is still in prices?
Credit concerns: The case of Eskom
0
200
400
600
800
Jul-15 Feb-16 Sep-16 Apr-17 Dec-17 Jul-18
bp 6.75% 2023 (USD) 5.75% 2021 (USD) 7.125% 2025 (USD) SOAF 5.875% 2022 (USD)
Nenegate
Liquidity concerns#Gupta Leaks start
Cabinet reshuffle S&P LC dowgrade
State of Capture report released
Restructuringspeculation
0
30
60
90
120
150
180
Jan-13 Mar-14 Apr-15 May-16 Jun-17 Jul-18
bp ES15 ES18 ES23 ES26 ES33 ES42 ESFR03
SA government raises funds for R23bn cash injection
Futuregrowth on corporate governance in SOEs
Liquidity concerns
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Being a responsible investor... get beyond “ESG”
Environmental
Management
Social
Alignment
Governance
Culture
Operational
Strategic
Market/
Competitive
Financial
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Sovereign debt & contingent liabilitiesPoor SOE management holds a significant risk to the debt/GDP ratio
LET’S MEASURE UP IN AFRICAAnnual Investment Conference
Cape Town | 26 July 2018
Government bond yields and term premiums
Source: iress, RMB Global Markets, data as at 20 July 2018
0.0
1.0
2.0
3.0
4.0
6.0
7.0
8.0
9.0
10.0
11.0
2012 2013 2014 2015 2016 2017
%% SAGB 10-y generic UST 10-y generic (RHS)
Nene gate
0
50
100
150
200
0
50
100
150
200
250
300
2012 2013 2014 2015 2016 2017
bp UST 10y/2y (bp) R186/R207 (bp)
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
Eskom governance self-assessment?
2017 Eskom Integrated Annual Report
2016 Eskom Integrated Annual Report
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
SOE pricing and issuance trendsLandbank and DBSA reap the benefits
3y 5y 1y 3y 5y 1y 3y 5y 1y 3y 6 month 1y 3y 5y 1y 3y
Volumes
Target issuance size
Number of participating bids 11 9 12 22 33 9 6 12 17 11 6 25 10 10 10 10
Bids received (R'mn) 553 283 1199 1337 2553 1138 614 1270 1046 971 466 2497 580 920 1015 1337
Bids allocated (R'mn) 523 233 331 243 426 500 245 1270 439 741 366 1232 261 795 576 230
Bid cover (x) 1.06 1.21 3.62 5.50 5.99 2.28 2.51 1.00 2.38 1.31 1.27 2.03 2.22 1.16 1.76 5.81
Spreads
Pricing guidance (bps) 180-195 270-285 120-130 165-175 240-255 90-120 130-150 190-230 90-100 135-145 60-70 90-100 130-145 160-175 85-100 125-140
Clearing spread (bps) 190 285 115 155 255 110 149 215 95 145 68 95 130 160 90 130
Aug-17
Up to R1bn
Aug-16
DBSALand Bank
Up to R1bn
Feb-17 Mar-17Mar-17 Aug-17 Mar-18
R750m R750m up to R1bn R1.5bn up to R2bn
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
PPCBond redemption
Holdings of government bonds: The role of foreign investors
8.6 10.4 12.8 13.821.8
28.635.9 36.4 36.0 32.4 36.0
41.4 41.414.0
16.318.0 18.3
17.716.9
17.0 14.6 14.6 17.617.8
15.0 15.844.8
46.443.9 39.9
36.5 33.325.2
29.2 31.7 30.6 28.3 26.6 26.1
0
20
40
60
80
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 May-18
%
Non-residents Banks Insurers
Local pension funds Other financial institutions Other
Source: National Treasury, RMB Global Markets
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
LET’S MEASURE UP IN AFRICA- ANNUAL INVESTMENT CONFERENCE
LET’S MEASURE UP IN AFRICAAnnual Investment Conference
Cape Town | 26 July 2018