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South Africa: Opening the Eurorand avenue

The World Bank's decision to open up its 25-year Eurorand offering for the third time late last month and the EIB's R100 million ($23 million) five-year deal are signs of renewed confidence in this nascent market. The next step in the market's maturing must be its use by local issuers, which is expected soon.

This would be a big step forward in the rebirth of South Africa's capital markets which have not been without their difficulties over the past few years.

The toughest of these was last year when the local capital market took a severe knock, mainly when foreign investors jumped out because of a weakness in the rand. Over the year the rand lost 30% in value, driving yields on five to 10 year issues to almost 16%. The currency volatility resulted in negative dollar returns on local rand-denominated bonds.

This had a knock-on effect. For instance the electricity utility Eskom, which had given notice that it was planning to do a Deutschmark issue, held back as it received indications there could be a penalizing spread.

But the falling rand also sparked a change in government policy. For many years the South African Reserve Bank was providing local borrowers on the foreign capital markets with forward cover against currency losses.

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