‘BRICS Bank’ issues first bonds to boost local currency

The New Development Bank (NDB), established by the BRICS countries, successfully completed its first auction for South African rand bonds.

This move comes as the bank faces increasing pressure to raise funds and expand its lending activities in local currencies. The auction, which saw the issuance of a 1 billion rand ($52.3 million) five-year note and a 500 million rand three-year note, received a total of 2.67 billion rand in bids, according to investors familiar with the matter.

The NDB was established by the BRICS countries, namely Brazil, Russia, India, China, and South Africa, with the aim of giving these nations greater control over development financing. However, South Africa’s finance minister has expressed concerns that the bank has not been doing enough in terms of local currency lending. In an interview with Reuters prior to the BRICS summit in Johannesburg, the minister urged the NDB to increase its efforts in this area.

The NDB, however, has remained tight-lipped about its bond auction. The bank did not provide any comment or response to a request for information on the matter. This lack of transparency has led to speculation and raised questions regarding the bank’s future plans and strategies. It remains to be seen whether the NDB will address these concerns during the upcoming summit.

In a recent interview with Reuters, the NDB’s CFO, Leslie Maasdorp, stated that the bank aims to increase local currency lending from its current level of about 22% to 30% by 2026. Most of the bank’s local currency lending has been in Chinese yuan, and Maasdorp acknowledged that there are limitations to fully de-dollarizing the bank’s activities. However, the CFO’s comments indicate that the NDB recognizes the importance of diversifying its lending portfolio and expanding its reach in local currencies.

NDB has recently priced its three-year rand bond at a floating rate of 95 basis points above Jibar, while the five-year bond was priced at Jibar +105 bps.

According to Raphi Rootshtain, a portfolio manager at Sasfin Wealth, the most recent South African government bonds were priced at Jibar +90 bps for a 4.5-year bond and Jibar +120 bps for a seven-year bond. It is worth noting that the majority of lending activities in South Africa are directed towards State Owned Companies (SOEs). As a result, the NDB will now serve as the primary funding source for SOEs, which introduces additional risk.

Standard Bank and Absa Bank acted as arrangers for the bond sale. However, they opted not to provide any comments regarding this matter. Kumeshen Naidoo, head of debt capital markets at Absa, stated that the sale saw an overwhelming response with 94% of bids falling within or below the price guidance. Furthermore, the issuance rates achieved by NDB represent the tightest spreads achieved by a non-government issuer in 2023.