Analysis of South African corporate bond market

Ndlovu, Josiel (2002-12)

Study project (MBA)--University of Stellenbosch, 2002.

Thesis

ENGLISH ABSTRACT: The bond market is an important economic element of both developed and developing economies. The after effects of the Asian crises have prompted arguments that the existence of well-functioning domestic bond markets would have helped to mitigate the impact of shocks in the financial systems of the emerging markets both by providing an alternative source of funding to bank lending and by exposing investors rather than taxpayers to negative shocks. Comparative analyses of various emerging markets were done by using data from the IMF, IFC and various publications. Data from the developed nations, in particular the United States were used as a source of reference because corporate bond market has been used successfully in these markets. Given the limited sources of reference locally, data was sourced mainly from the Bond Exchange of South Africa publications, financial magazines and newspapers, workshop presentations and comments from various bankers, economists and fixed-income analysts. The report starts by looking at the size and growth of the market in comparison with its counterparts in the emerging markets. The reasons, facts, figures and arguments for such growth are thoroughly discussed. This study presents comprehensive macro-economic arguments on the development of the corporate bond market and the benefits they offer to corporates as an alternative source of long-term capital debt funding. The quantitative and qualitative model that assists corporates with the decision making process of whether to issue a bond to fund the capital structure is discussed. The study undertook a quantitative survey of the elements of corporate bond market in terms of coupon rates, bond pricing, risks (namely, credit rating risk and default risk) and the performance of the market, in particular the marketability, liquidity and returns. The investment strategy in the riskier part of the bond market is introduced and discussed, though limited in terms of development. The report concludes by mentioning the successes of the bond market by identifying the existing gaps in the market and the future development of the corporate bond market in South Africa, especially to attract more issuers to the net.

AFRIKAANSE OPSOMMING: Die lang termyn effekte mark, is "n belangrike finansierings element van beide die ontwikkelde en die ontwikkelende ekonomië. Die Asiese krises het as nagevolg gehad dat daar gefokus kon word op die moontlik versagtende invloed van "n goed gedefinieerde funksionele binnelandse effekte mark. Dit kon van die nagevolge versag het deur die daarstelling van "n alternatiewe finansierings bron en die daaropvolgende blootstelling van beleggers in die plek van die belastingbetalers. Vergelykende ontledings van verskeie ontwikkelende mark ekonomië is gedoen deur gebruikmaking van inligting verskaf deur die I.M.F. en I.F.K. asook ander publikasies. Inligting oor ontwikkelde lande in besonder die V.S.A. is gebruik as vergelykende anelise omdat die lang termyn effekte mark suksesvol bedryf word in hierdie markte. Weens die gebrekkige beskikbaarheid van binnelandse bronne i sinligting meestal vanaf die publikasies van die Lang Termyn Effekte beurs van Suid Afrika, finansiële tydskrifte, koerant publikasies, werkswinkel voorleggings asook gespekke met bankiers, ekonome en vaste koers beleggings ontleders verkry. Hierdie studie stuk, vergelyk in die eerste deel die omvang en groei van die mark in vergelyking met ander markte in ontwikkelende lande. Die verskeie groei veranderlikes asook redes en feite rakende groei word in diepte bespreek. Vergelykende makro ekonomiese bewyse vir die ontwikkeling en vestiging van "n lang termyn effekte mark, en die voordele daarvan vir Maatskappye as "n alternatiewe bron van kapitaal word in hierdie studie aangebied. Die kwantitatiewe en kwalitatiewe model vir gebruik deur Maatskappye om tot besluitneming te kom rakende die gebruik van effekte om kapitaal benodighede te befonds word ook bespreek. Die studie het ook "n kwantitatiewe opname ingesluit rakende die verskeie elemente van d ie effekte mark en 0 nder a ndere is daar nad ie koepon koerse, effekte prys bepaling, risiko (naamlik krediet en dishonorering), mark tendense en opbrengste, met besondere verwysing na bemarkbaarheid, likwiditeit en opbrengs. Beleggings strategie in die meer riskante deel van die lang termyn effekte mark word ook bespreek, maar dit is beperk weens die beperkte ontwikkeling daarvan. Afsluitend word verwys na verskeie sukses faktore in die effekte mark deur die indentifisering van bestaande gapings, en die toekomstige ontwikkeling van hierdie spesifieke mark in Suid Afrika. Die doelstelling om meer toetreders na die mark te lok as deelnemers deur die uitgifte van lang termyn effekte word ook benadruk.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/52654
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