First corporate bond lists on Yield-X

25 August 2008

Housing developer Calgro M3 has become the first South African company to list a bond on Yield-X, the JSE’s interest rate exchange, giving the company the flexibility of having multiple issuances with different debt instruments and different tenures, when and where it suits them.

Calgro M3, which is listed on the JSE’s Alt-X alternative exchange, will initially raise R40-million through the issuing of a short-dated zero coupon bond to enable it to undertake further developments in the low-income housing market, which is the company’s primary business.

“Three fund managers have already snapped up the bond quickly, which demonstrates the appetite for the issuing of quality bonds,” JSE trading general manager Warren Geers said in a statement this week.

“There are another four to five issuers in the pipeline to list bonds, which indicates that current market conditions are not a deterrent to issuers wanting to list a bond as long as the company has a need.”

Cheaper financing

According to the JSE, the listing on the Yield-X has paved the way for residential housing developers to gain access to institutional funding for the first time in South Africa, making it possible for companies to raise cheaper priced debt for financing their integrated and affordable housing developments as well replacing costly debt in their operations.

“Funding of a development business requires the combination of a diversified set of funding providers in order to arrive at optimal funding mix in terms of cost of debt and tenure and also creating adequate capacity for a developer,” said Calgro M3 CEO Peter Waweru.

Company developments which stand to benefit from the bond issue include the R1.6-billion Fleurhoff project to build 6 000 homes, set to commence in September, and the R2.6-billion Midrand project to built 14 700 homes, set to commence in April 2009. Both projects are located around Johannesburg.

“Having listed on the Alt-X only nine months ago, we feel proud and excited to be part of this ground breaking event within the maiden year of the company’s listing, putting us on a trajectory to fund growth expectations,” Waweru said.

Appealing investment

For investors wanting to trade bonds, Yield-X listed bonds are particularly appealing in that Yield-X’s trading fees are the most competitive in the market and that as orders are matched anonymously, a credit wash is provided.

“Essentially there is no counter-party risk, because the South African Futures Exchange clearing company does the credit wash for each trading participant and thereby is not exposing the balance sheet to the counter-parties,” explained Geers.

Yield-X also provides the flexibility for trading to take place either through the central order book or merely by reporting transactions to the exchange.

“Either way, the investor enjoys a high degree of protection, as the JSE has set minimum standards which they have to adhere to with the Financial Services Board,” the JSE says.

SAinfo reporter

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