South Africa wants a private partner to boost retail bond sales

South Africa is seeking private sector partners to ramp up its sale of government bonds to the retail market, potentially widening its investor base and lowering the cost of borrowing.

“There’s a big opportunity,” National Treasury Director-General Duncan Pieterse told Bloomberg in an interview at its Johannesburg offices on Monday.

South Africa’s existing retail-bond sale program raises about R3 billion ($184 million) a year, for a total amount currently outstanding of just over R20 billion, according to the Treasury.

Pieterse said that this fell short of the retail market’s potential and if sales could be durably increased — for example,, to as much as 30 billion rand — it could mean relying less on institutional investors and reducing the size of weekly bond auctions.

“That obviously gives you an opportunity to take some of that supply that you are currently putting there from a fixed-rate bond and inflation-linked bond perspective out of the market, further compressing yields and decreasing interest rates,” he said.

South Africa’s borrowing requirement is projected to decline to R380 billion in 2026-27 from R563 billion in the current fiscal year, before rising to R569 billion in 2027-28.

The rand and benchmark government bonds have rallied sharply in recent months, buoyed in part by growing confidence that the Treasury will deliver on its promise to control public finances, as well as the adoption of a 3% inflation target by the central bank that Finance Minister Enoch Godongwana explicitly endorsed in November.

Pieterse expects a private-sector partner to be appointed by the time of next year’s budget in February, giving the Treasury a clearer sense of the baseline potential for retail issuance.

He’s also optimistic about the prospects for further South African infrastructure bonds, after the country’s debut issue attracted strong demand last year, raising R11.8 billion.

While there’s continued investor interest, the timing of the next issue will be determined by the pipeline of infrastructure projects that succeed in getting official backing, Pieterse said, while adding that infrastructure investment was a “big priority” because of its economic impact.

“We are trying to push it as much as we can because of our positivity for growth. And also of course, many of these infrastructure projects are very critical for service delivery,” he said.

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