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Bond Exchange of South Africa

Bond Exchange of South Africa. OECD POLICY SEMINAR “How to reduce debt costs in Southern Africa” “The Development of the South African Corporate bond market, relevance, impediments, prospects” TOM LAWLESS – CEO 25 MARCH 2004. TOPICS FOR DISCUSSION. Overview of Global Corporate Bond market

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Bond Exchange of South Africa

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  1. Bond Exchange of South Africa OECD POLICY SEMINAR “How to reduce debt costs in Southern Africa” “The Development of the South African Corporate bond market, relevance, impediments, prospects” TOM LAWLESS – CEO 25 MARCH 2004

  2. TOPICS FOR DISCUSSION • Overview of Global Corporate Bond market • Overview of SA bond market • Why is our market different? • Factors effecting change • Impacts of international banks in SA bond market • Areas of concern • Ways to get markets going • Prospects

  3. APPENDICIES • Corporate bonds issued in last 12 Months • Bonds in issue 1999-2003 • Bonds in issue 2/2004 • Listing fees

  4. OVERVIEW OF GLOBAL CORPORATE BOND MARKET • CORPORATE BONDS • US and Europe – big and vibrant markets • US > 4 million issues of bonds of all kinds – government, states, municipal, banks, mortgage backed etc. • Corporate bonds exceed government etc in number • Deutsche Bank spokesman • “Daily secondary market trading in MBS is now greater than US treasuries” • Issuance continuing • Re-rating of some issuers

  5. OVERVIEW OF SA BOND MARKET • Predominantly a government bond market – 94% of turnover in 2003 (Spot & Repo) • Very Liquid market and high velocity of circulation - some 20 times per annum • Government bonds are some 72 % maturities, corporates and public enterprises etc. make up the balance . Corporate bonds in issue have grown from 2.82% in 1999 to 16.9% in 2/2004

  6. Bond Market Turnover (Billion Rand Nominal Traded) 1995-2003

  7. SPOT & REPO (Nominal Traded - Trillion) 1992 - 2003

  8. Total Bond Market Turnover Breakdown by Major Issuer (Nominal Traded) 1995 to 2003

  9. SPOT & REPO (Nominal Traded - Trillion) 1998 -2003

  10. WHY ARE WE DIFFERENT? COMPLEX ISSUE – MANY REASONS ADVANCED • Preference for government, parastatal and bank paper • Greater risks not widely understood by trustees – particularly employee representatives • “ROE” of banks received less attention in past • Banks appetite for assets – more to lend to corporates than to list • Banks chasing market share in corporate finance world • Illiquid secondary market :- • little / no market making activity • No repo market

  11. FACTORS AFFECTING CHANGE • Re-investment opportunities for coupon payments • More diversification in issues • Securitisations • Banks being more innovative • Capital better utilised elsewhere – Basle II impacts • Better pricing of corporate loans • New portfolio managers arriving • Differentiate from the old established firms • Easier to issue using DMTN type documentation – international banks influence • Cost of bond finance dropped dramatically • No stamp duties on issue

  12. IMPACT OF INTERNATIONAL BANKS IN SA BOND MARKET • Changed the attitudes of corporates • Banks are fee driven not annuity income driven • Thus focus different – issue driven, more corporate issues • Issuance styles more towards DMTN • More comprehensive documentation – more European style • More international practice driven

  13. AREAS OF CONCERN • Very few mortgage backed securities (MBS) • Why is there no “Ginnie Mae” type operation in South Africa? • Pathetically low savings ratios • Who Is doing anything to reverse this?? • Who should do it? • Illiquid secondary market:- • Little / no market making activity • No repo markets

  14. THOUGHTS ON WAYS TO GET MARKETS GOING • Consolidate municipal debt into more manageable and attractive parcels • Public / private partnerships should be strongly encouraged to list debt • Get a “Ginnie Mae” off the ground • List money market instruments

  15. THOUGHTS ON WAYS TO GET MARKETS GOING • Radical re-look needed at logic of taxing interest on savings • SA savings ratio is so low • Encourage, don’t discourage savings • List SA government currency debt here to encourage easier and further asset diversification • Invest in our own country in hard currency • This is not “dollarisation of the Rand” • Invest in municipal bonds of your city • Get a rebate on rates and taxes

  16. PROSPECTS • Very promising • Rates low – encouraging environment in which to borrow • Offshore entities allowed to list – (2004/5 – National Budget) • Municipalities – encouraged to list - (2004/5 National Budget) • Enquiries increasing • Securitisations • Innovative ways coming to the fore

  17. TOM LAWLESSTEL: (011) 482-2605 FAX: (011) 482-6699tomlawless@besa.za.comwww.besa.za.com

  18. APPENDICES • CORPORATE BONDS LISTED – PAST 12 MONTHS • Corporates • Securitisation & Dual Listings • Programmes • GROWTH SINCE 1999 – R’ BILLION • TOTAL BONDS IN ISSUE • LISTING FEES

  19. CORPORATE BONDS LISTED - PAST 12 MONTHS CORPORATES • Eagle Bonds One (Pty) Ltd R887 Million • Anglogold Ltd R2 Billion • Sasol Financing (Pty) Ltd R2 Billion • Imperial Group (Pty) Ltd R1 Billion • Lever Ponds (Pty) Ltd R2.5 Billion • African Bank Ltd R1 Billion • Firstrand Bank Ltd R1.3 Billion • Investec Bank Ltd R1 Billion • Development Bank of SA R2 Billion • SBSA (Credit-linked note) R1.2 Billion • Nedbank Ltd R500 Million • SBSA R1 Billion • Daimler Chrysler R2 Billion • Steinhoff Manufacturing (Pty) Ltd R1 Billion • SA National Road Agency Ltd R2.3 Billion • Trans-Caledon Tunnel Authority R1 Billion TOTAL R21.7 BILLION continued on next slide

  20. CORPORATE BONDS LISTED - PAST 12 MONTHS Continued…….. SECURITISATIONS • AutoLoan Invest (BMW) R1.83 Billion • Collaterallised Auto Receivables (ABSA) R3 Billion • Equipment Rentals Securitisation (SASFIN) R670 Billion • Private Mortgages “PRIV” (Investec) R1.4 Billion • Thekwini Fund (SA Home Loans) R2 Billion • Indwa Investment Ltd (RMB) R4.2 Billion • Asset Backed Arbitrage (ABSA) R3.65 Billion • Infrastructure Finance Corporate Ltd R150 Million Total R13.25 Billion DUAL LISTINGS • Swaziland Posts & Telecoms R41 Million

  21. CORPORATE BONDS LISTED - PAST 12 MONTHS Continued…….. PROGRAMMES • Lever Ponds (Pty) Ltd (CP) R1.5 Billion • Grayson Conduit (Pty) Ltd (Investec) (CP) R10 Billion • Eagle Bonds One (Pty) Ltd (DMTN) R930 Million • First Rand Bank Ltd (DMTN) R5 Billion • Investec Bank Ltd (DMTN) R10 Billion • Nedbank Ltd (DMTN) R10 Billion • Swaziland Posts & Telecommunications (DMTN) R500 Million Total R37.93 Billion

  22. GROWTH SINCE 1999 – R’ BILLION 20031999 • Central Government R371.115 R327.106 • Municipal R .091 R .984 • Public Enterprises R 35.829 R 48.091 • Water Authorities R 18.415 R 11.086 • Banks R 30.256 R 7.149 • Securitisation R 21.232 R 1.247 • Other Corporates R 18.542 R 2.850 • Dual Listed R .041 R - • Commercial Paper R 11.300 R - TOTAL R506.921R398.513 CORPORATES 16.9% 2.82%

  23. TOTAL BONDS IN ISSUE AS AT 29 FEB 2004 • Central Government R351.76 Billion • Municipal R 91 Million • Public Enterprises R 35.67 Billion • Water Authorities R 18.02 Billion • Corporates R 82.65 Billion • Banks R 31.44 Billion • Securitisation R 21.31 Billion • Gold Mining R 3.2 Billion • Chemical R 2 Billion • Food R 1 Billion • Household Goods R 1 Billion • Telecommunication R 5 Billion • Transport R 6.5 Billion • Credit Linked Notes R 1.5 Billion • Commercial Paper R 9.7 Billion • Dual Listing R 41 Million TOTAL R488.23 BILLION Corporates 16.9%

  24. LISTING FEES • LISTINGS FEES - (BESA FEES) • INITIAL • R10,000 - R25,000 - once off fee (dependent on complexity) • ANNUAL REVISION FEE • ISSUE SIZEBASE FEES • 0 < R250m R 2 000 • R250m < R1 bn R 6 000 • R1 bn + nominal R12 000

  25. LISTING FEES • ANNUAL • Comprises a base fee and a surcharge fee, payable annually • Base fee calculated accordingly to a fixed scale (previous slide) • Surchargecalculated accordingly to formula • Surcharge fee = market surcharge (R) X relative size (%) • Market surcharge amount is currently set at R1,5 million • OTHER FEES / COSTS associated with listings process • Lawyers • Arrangers • Road shows • Printing

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