SA to take $1bn Covid-19 loan from New Development Bank
• We are actively looking for cheap money around the world, says Treasury director-general Dondo Mogajane
The Treasury says it will take up a $1bn (about R19bn) loan from the New Development Bank (NDB) to fight the Covid-19 epidemic and is still considering facilities offered by other multilateral funding organisations.
SA was hit on Friday by another ratings downgrade from Fitch Ratings, which placed the country’s debt two notches into junk.
The downgrade, plus one earlier last week by Moody’s Investors Service, which also junked government debt, means that SA will take several years to claw its way back up the ratings ladder, just as its debt burden continues to spiral and the Covid-19 crisis hits.
“We are actively looking for cheap money around the world.
We are assuming that at some point global liquidity will dry up so our approach is to rather get the money while it is cheap. The NDB has said to us from day one they have $1bn for SA. We are taking that with both hands,” said Treasury director-general Dondo Mogajane.
The NDB, formerly referred to as the Brics bank, was established in 2015 by China, India, Brazil, Russia and SA to fund infrastructure.
“We do not yet have a formal request but we have been in discussions with the government led by National Treasury,” said the vice-president and CFO of the NDB, Leslie Maasdorp.
Of the countries that make up the group, three are investment grade, while only Brazil and SA are rated junk.
“As a shareholder, SA could draw $1bn under the emergency assistance programme that is available for shareholders. The money would be available within days,” Maasdorp said.
While a dollar-denominated loan could be problematic for the country should the rand continue to depreciate sharply against the dollar, the terms were very favourable, Maasdorp said. The country has a relatively small component, approximately 10%, of its total borrowings denominated in foreign currency.
“Due to the bank itself being rated AA+, which is even higher than China, there is huge demand for our bonds and that makes our cost of funding extremely cheap.
“This cost of funding is passed on to our member countries regardless of individual
credit strength. So whether we lend to China or SA, the rate is the same,” Maasdorp said.
The bank successfully issued a three-year 5-billion renminbi (equivalent to R13.412bn) bond called a “Corona virus combating bond” last week.
PRICING RANGE
The bond was priced at the lower end of the announced pricing range, the bank said.
The implied cost of funding would be well below SA government debt as is indicated in current bond yields, and the tenure of the loan could be between 12 and 20 years.
SA would be the second Brics country to tap the emergency assistance programme after China borrowed $1bn in March.
The World Bank and the IMF have also established special Covid-19 facilities. The World Bank has offered SA $50m. The IMF has a $1-trillion facility to assist countries with balance of payments problems and swap facilities for US dollars.
“We haven’t taken the World Bank offer. We are still evaluating the need. We might want to take more than that. The IMF funding is not for funding of projects, and we do not need that now,” Mogajane said.
He said that the Treasury was working on a package of measures including economic and welfare support that it will present to cabinet on Thursday. It was also engaged in reorganising the budget through virements (transfers) from department projects and funding to areas that need more funding, such as the health system.
The Covid-19 epidemic has not hit SA with force yet but the 21-day shutdown is expected to cripple businesses and hit income hard.
“We are alright now but in three weeks’ time, when people have nothing to buy food, we will be in trouble.
“We should be looking at some kind of assistance for the 14.5-million vulnerable households,” Mogajane said.
The presidency is also involved in intensive work around the welfare options, but the difficulty for the Treasury is where the money will come from.
In the US, where Covid-19 is ravaging the country, 6-million new claims for unemployment benefits were made last week, the highest in American history. In the past two weeks 10-million people have lost their jobs, compared with 9-million job losses over the entire 2008-2009 global financial crisis.
In SA, the Unemployment Insurance Fund says it has R30bn immediately available to support a Covid-19 benefit for people laid off during the crisis. The benefit is available only to those who contributed to the fund, mostly people employed in the formal sector.
Concerns are growing, however, over whether the fund has the administrative capacity to make payments to hundreds of thousands of employers.
R13.4bn the amount the NDB successfully issued as a Corona bond last week
IN THREE WEEKS’ TIME, WHEN PEOPLE HAVE NOTHING TO BUY FOOD, WE WILL BE IN TROUBLE. WE SHOULD BE LOOKING AT SOME KIND OF ASSISTANCE