Accessing African credit opportunities

Oct 26, 2017

South Africa |

JOHANNESBURG, 26 October 2017:  A Bloomberg League Table recently ranked Standard Bank 12th globally in terms of the volume of Credit Linked Note (“CLN”) issuance in US$ equivalent. CLNs are structured investments issued by banks delivering enhanced returns to institutional investors in exchange for taking credit risk on specific third parties. Broadly, CLNs serve to:

  • Extend the investment opportunity set for fixed income investors. This is highly sought after in the South African market where demand significantly outstrips supply
  • Deliver a mechanism for efficient credit risk transfer that also helps banks address credit portfolio concentration risks
  • Provide a source of long term funding for banks

Building on Standard Bank’s recognised global ranking as an issuer of CLNs, the bank’s recent initiation of its Luxembourg US$-based structured note programme provides an opportunity for investors to benefit from Standard Bank’s established expertise in credit - as well as its ability to access risk-managed African exposure.

The Luxembourg structured note programme, “extends our product offering by providing investors in South Africa, the rest of Africa and globally, the opportunity to access African yield in sovereign and corporate debt - as well as foreign exchange - via risk-managed structured products,” says Hennie Snyman, Co-Head of Client Solutions for Institutional Investors at Standard Bank.

Investors seeking growth outside of South Africa’s market will not find many US$-based investment vehicles that provide access to African growth via structured products. Since the JSE offers exclusively ZAR-denominated listed investments, investors looking for broader opportunities can now put their capital to work through CLNs providing, “US$-based access to African yield that reflects corporate and sovereign growth across Africa’s multicurrency environment,” he adds.

Developing structured investment and risk management solutions for asset managers, insurance companies and pension funds - across equity, fixed income, credit and currency asset classes - in a complex and changeable environment, requires a holistic understanding of the relevant markets and their regulatory and legislative frameworks.

“This is causing clients to pay more attention to their risk management plans,” says Mr Snyman. Increasingly, risk management programmes include investment structures and financial market partners able to provide the flexibility and expertise to allow clients to manage their portfolios through periods of stress. Standard Bank’s access to global credit assets and its large balance sheet in local markets equip it to offer institutional investors access to globally-compliant credit structures appropriately risk-managed for a range of domestic economic challenges across multiple jurisdictions.

“By neatly packaging risk, for example, through inflation and credit linked assets, we’ve been able to create unique and attractive risk-return propositions for clients,” says Mr Snyman. Standard Bank’s CLNs, for example, incorporate well-defined links to high quality corporate debt, with over 90% of the underlying assets investment grade.

According to Anastasia Halamandaris, Co-Head of Client Solutions for Institutional Investors at Standard Bank, “The fact that Standard Bank – with the majority of its balance sheet denominated in ZAR – is ranked amongst the world’s largest banks such as Citigroup Inc and JPMorgan Chase & Co for CLN issuance speaks volumes to the strength of our capabilities in structured products generally.”

Standard Bank’s majority market share in ZAR-denominated, listed structured credit issuance, as at the end of September 2017, reflects investor confidence in the bank’s ability to develop bespoke and relevant credit solutions.  This is an especially important message for global investors seeking to partner with a well-established product house able to leverage multi-asset African returns.

Being present in 20 markets across the continent enables Standard Bank to understand the African corporate and sovereign debt landscape. “This insight – and the trust it inspires – cannot be replicated unless you are present, on the ground, working with African corporates and regulators every day,” says Ms Halamandaris. Given the strong element of probity and trust required in syndicating debt, “our presence and deep insight into corporates on the continent is a significant advantage that other global banks can’t easily emulate,” she adds.  

Going forward there will be a need for appropriately structured investment and debt product contracts (including the possibility of restructuring existing contracts) to reflect rapidly changing local and global legislation as governments and regulators across the world react to financial market volatility with new measures and controls.

As such, beyond South African investors, a US$-based investment product linked to Africa’s higher yielding emerging markets, provided by an institution intimately familiar with African risk, “presents a powerful proposition to global investors looking to access African yield,” says Ms Halamandaris.

Standard Bank’s US$-based structured note programme represents the bank’s newest innovation in leveraging risk-managed African credit opportunities.

 

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