Rating: Aa3/AA-/A+
Amount: R100m
Maturity: December 29, 2006
Issue price: 97.81
Fixed re-offer price: 96.21
Coupon: 12%
Launched: Monday December 4
Lead mgr: RBC DS
Bookrunner's comment:
We had a lead order for a non-supranational on the six year maturity from European investment funds. It has immediately started retailing into Germany, Austria, Switzerland, Benelux. Commerz already has a long history in this market.
We have covered quite a few maturities in this market - we did a deal with Deutsche on the five year sector only last week.
Market appraisal:
"...this was a very cheap deal. We knew a lot of our usual customers had redemptions coming up at the end of December. We sold to German retail."
"...a high coupon, which will make this attractive to retail investors. We took a ticket of R2m and that is not yet all sold. So far, we have encountered strong demand from retail accounts and co-operative banks in Germany."
"...not bad. This is targeted at the retail sector, so, as ever, sales have got off to a slow start. Flows are quite light, but we are confident that we can sell our R2m ticket over time without too many problems."
Market report
Compiled by Vusi Mhlanzi, RBC DS Global Markets, London.
Tel: +44 20 7881 5643
The markets continued their positive tone this week, amid strong domestic fundamentals. Stock prices extended their losses to the benefit of the bond market.
Reserves data had little impact, as the improvement was seen to be a result of rand weakness. Gross reserves rose R1.2bn to R58bn, against an expected R57.4bn. The net open forward position also improved, by $100m to $9.5bn, which was in line with expectations.
Bonds rallied to levels not seen in almost seven years, amid easing inflation concerns and signs that government was on track to reduce its borrowing requirement. The five year benchmark rallied to 12.15% ahead of municipal elections, before retracing to close at 12.22% on Thursday - still leaving a gain of about 30bp in the last five trading days.
Municipal elections were held on Tuesday and went ahead peacefully, with only a few isolated incidents of violence reported. The ANC won about 60% of votes, with the Democratic Alliance, the ANC's main opponent, winning about 23%.
The bond market's mood remains upbeat, and as stock prices remain volatile and oil prices are sliding, some players are talking of a break below 12% for the five year benchmark before the year end.
The foreign exchange market had a better week, with the rand posting a gain of more than 13 cents in the last five trading sessions, to reach R7.573/$. The euro's strong showing against the US dollar, and improving sentiment towards emerging markets added to the good mood. The currency also gained about nine cents against sterling, to R10.9427/£ and remained steady against the euro, at R6.7622/Eu. The euro's performance against the US dollar will likely remain the main driver for the local unit.
The South African Reserve Bank released its third quarter bulletin, which showed a swing in the current account from a surplus of R4.7bn to a deficit of R5.2bn (0.6% of GDP). The savings ratio deteriorated from 15.5% to 15% of GDP in the second quarter.
South Africa continues to struggle to attract foreign direct investment, FDI staying unchanged at R700m. The Reserve Bank expressed concerns about the speed of the rise in producer inflation, which it says poses a threat to a steady decline in consumer inflation.
