Latest news with #SOFR
Daily Maverick
4 days ago
- Business
- Daily Maverick
National Treasury secures R26bn World Bank loan in strategic move for infrastructure reforms
South Africa has secured a R26-billion loan from the World Bank to modernise our infrastructure – without adding to sovereign guarantee burdens. But favourable terms mean little without delivery. Can South Africa finally convert reform pledges into real power, rail, and fiscal performance? In a bid to shift our faltering economy out of low gear, the National Treasury and the World Bank have inked a $1.5-billion (R26.5-billion) Development Policy Loan agreement aimed at unlocking long-promised, but long-delayed, structural reforms across the country's infrastructure backbone. Sweet deal, soft start The loan, which was finalised on Monday, 23 June 2025, comes with some pretty good terms — definitely better than if South Africa had just gone to the open market: We have 16 years to pay it back. So, it's a long-term plan, not a quick smash-and-grab. We don't have to start paying anything back for the first three years. This is a 'grace period' that gives us some breathing room to get things in order before the first instalment is due. The interest rate isn't fixed. It's a 'floating rate', which means it will change over time. It's tied to something called the six-month SOFR, which is a very stable and trusted international benchmark rate for US dollars. On top of that, we pay an extra 1.49%. 'If the borrowing is associated with capital investment, then there's the opportunity to generate a return that will help service the debt,' Old Mutual Wealth strategist Izak Odendaal told Daily Maverick. 'Borrowing to fund recurrent expenditure is much harder to justify.' Spreading the spending power Political and economic analyst Daniel Silke said the real issue is how it will be spent. 'Will it be spent credibly, efficiently, and without graft and corruption? We've gone through a decade or two where we have not invested in domestic capital formation. The backlog in infrastructure… now ultimately has to be funded, certainly in part, by external loans like this.' According to the National Treasury, the deal is designed to 'enhance the efficiency, resilience, and sustainability' of South Africa's public infrastructure services. The main focus: policy reforms in the energy and freight transport sectors that can enable broader infrastructure modernisation and private investment. 'This agreement reinforces the strong and constructive collaboration between the World Bank and the government of South Africa,' the National Treasury noted in the release announcing the loan's approval. Show me the money It's important to distinguish the loan's structure and purpose. This is a Development Policy Loan, meaning the funds are not project-specific. Instead, they are general budget support disbursed in tranches conditional upon meeting agreed reform milestones. The Treasury says these reforms centre on: Improving energy security. Boosting freight transport competitiveness. Advancing the just energy transition. Unlike project loans, this money won't directly pay for power stations or rail upgrades, but is aimed at incentivising reform across state institutions like Eskom and Transnet — and unlocking further capital by stabilising policy conditions. Disbursements are tied to measurable regulatory or governance benchmarks — such as unbundling electricity transmission or enabling third-party rail access — designed to unlock future private capital inflows. Reform or rewind The loan lands at a time of acute public finance strain: sluggish growth, surging debt service costs, and deep political gridlock following the collapse of a proposed VAT hike. With fiscal consolidation plans fraying under coalition tensions, the Development Policy Loan becomes not just a financial tool but a litmus test of South Africa's political capacity to implement reform. South Africa's history with reform-tied financing is mixed. From unbundling Eskom to fixing port backlogs, targets are often missed, deferred, or diluted. The Treasury insists this loan aligns with its broader fiscal strategy: to avoid contingent liabilities, limit market borrowing and crowd in private capital. Transmission tangle — another $500-million While the Development Policy Loan grabs headlines, it is part of a broader ecosystem of multilateral support. Reuters reports that the World Bank Group is also weighing a $500-million contribution to a proposed credit guarantee vehicle meant to underwrite South Africa's planned $25-billion transmission build-out. This facility would be a stand-alone fund, absorbing project risk and unlocking private sector participation without drawing on sovereign guarantees. The goal: unlock up to 20GW of stalled renewable energy capacity, particularly in remote provinces like the Northern and Eastern Cape. The Treasury plans to contribute $100-million in junior capital (first-loss tranche), eventually scaling to $500-million. Discussions are under way with partners including Miga, the International Finance Corporation, DBSA, AfDB, KfW, and British International Investment. While discussions remain at the proposal stage, the Treasury expects to finalise initial commitments before the 2026 Budget, contingent on co-financier alignment. Can we afford this? On paper, the Development Policy Loan offers low-cost, flexible financing. But it's still dollar-denominated debt in a fiscus under pressure. Repayments begin after three years (on principal), but interest accrues and must be made in hard currency, exposing the Treasury to forex volatility. With a floating rate (SOFR +1.49%), repayments will rise if global interest rates increase. The Treasury already spends over 20% of its main budget on debt service, and gross loan debt is projected to exceed 75% of GDP. Odendaal notes that this loan remains within the Treasury's foreign borrowing limits, but South Africa must tread carefully: most debt is rand-denominated for a reason. Odendaal notes this loan remains within Treasury's foreign borrowing limits, but South Africa must tread carefully: most debt is rand-denominated for a reason. Reform isn't optional While the World Bank does offer oversight and monitoring, Odendaal warns that no loan is immune to governance risk. 'There's no guarantee that the money is going to be allocated 100% efficiently,' he said. 'But it's probably a better option than trying to raise money in the market.' For now, the $1.5-billion is a breath of fresh air that, with luck, will offset short-term fiscal pressure and offer credible support to reformists inside the Treasury. The key to whether it will be maximised effectively, however, will have to come squarely from State-Owned Enterprises and Prasa and Eskom will benefit financially, but in order for South Africa to do so, governance will need to improve correspondingly to make the loan less a windfall, and more a structural change. DM
Zawya
4 days ago
- Business
- Zawya
Arab Energy Fund prices 3-year $600mln notes
The Arab Energy Fund (TAEF) has priced its $600 million Reg S 3-year senior unsecured notes at 3.985%, or SOFR mid-swaps plus 50 basis points. Final books were at $1 billion, excluding joint lead manager interest. The notes are issued under TAEF's Global Medium Term Note Programme may follow, subject to market conditions. Initial price thoughts (IPTs) were in the area of SOFR MS + 60bps. Citi, Commercial Bank of Dubai, DBS Bank Ltd., and Emirates NBD Capital are acting as joint lead managers and bookrunners for the transaction. (Writing by Brinda Darasha; editing by Daniel Luiz)
Business Times
21-06-2025
- Business
- Business Times
Musk's xAI extends deadline and ups yield on bonds following lukewarm demand: source
[NEW YORK] Elon Musk's xAi extended the deadline and increased the yield it is paying on a US$5 billion debt sale following lukewarm reception from investors, a source with direct knowledge of the matter said on Friday (Jun 20). The deadline for investors to commit to buying into the deal, which includes bonds and loans, was extended from Tuesday to Friday, this source said, asking not to be named because the details of the deal were private. xAI also upped the yield on the US$3 billion in bonds and a US$1 billion term loan from 12 per cent to 12.5 per cent yield, they said. xAi sweetened the pot on a second term loan from 700 basis points to 725 basis points over the Secured Overnight Financing Rate, known as SOFR. The term loan B is set to be priced at a discount of 96 US cents on the US dollar, the source said. xAI and Morgan Stanley, which is leading the deal, did not immediately respond to requests for comment. High-yield bonds paid an average yield to maturity of 7.6 per cent as at Thursday, according to ICE BofA High Yield Index. Investors are demanding more for xAI's debt because the company and its bonds are not yet rated, giving investors little visibility into the company's finances and increasing the risk. An increase in the yield offer could mean that investors had probably agreed to buy the debt only for a higher yield. The borrower also has lesser flexibility on pricing when investor demand is modest. If the deal closes on Friday, Morgan Stanley will distribute the securities to investors on Monday, this source said. The xAI offering, which was reported on Jun 2 as Musk and US President Donald Trump traded barbs over social media, did not receive overwhelming interest from high-yield and leveraged loan investors, Reuters reported earlier this week. One portfolio manager, who said he passed on the bonds, said a 'good deal' will typically be oversubscribed by three to four times. xAI would up the yields if it didn't attract enough investors, he added. Unlike Musk's debt deal when he acquired Twitter, Morgan Stanley did not guarantee how much it would sell or commit its own capital to the deal, in what is called a 'best efforts' transaction, according to one source familiar with the terms. xAi did not immediately respond to a request for comment. Morgan Stanley declined to comment. REUTERS
Yahoo
20-06-2025
- Business
- Yahoo
Musk's xAi increases yield offer on $5 billion debt raise, source says
By Tatiana Bautzer NEW YORK (Reuters) -Elon Musk's xAi is increasing the yield it is offering on a $5 billion debt raise led by Morgan Stanley, a source with knowledge of the matter said on Friday. xAi is offering to pay 12.5% yield on $3 billion in bonds, said the source who asked for anonymity to disclose non-public information. Previously, sources told Reuters the company had offered a 12% yield. xAi is also offering 12.5% fixed yield on a $1 billion term loan and set to price a $1 billion term loan B at 725 basis points over the Secured Overnight Financing Rate, known as SOFR. The term loan B is set to be priced at a discount of 96 cents on the dollar, the source said. The initial offering on the securities was 12% on the fixed loan and 700 basis points over the SOFR on the floating rate loan. Junk-rated bonds paid an average yield to maturity of 7.602%, according to ICE BofA High Yield Index. The deadline for investor commitments was extended from Tuesday to Friday and allocations will be done one day after closing, the source said. If the deal closes on Friday, allocations will happen on Monday. An increase in the yield offer could mean that investors had probably agreed to buy the debt only for a higher yield. The borrower also has lesser flexibility on pricing when investor demand is modest. The xAI offering, which was reported on June 2 as Musk and U.S. President Donald Trump traded barbs over social media, did not receive overwhelming interest from high-yield and leveraged loan investors, Reuters reported earlier this week. Unlike Musk's debt deal when he acquired Twitter, Morgan Stanley did not guarantee how much it would sell or commit its own capital to the deal, in what is called a "best efforts" transaction, according to one person familiar with the terms. xAi did not immediately respond to a request for comment. Morgan Stanley declined to comment.
The Star
20-06-2025
- Business
- The Star
Musk's xAi increases yield offer on $5 billion debt raise, source says
FILE PHOTO: A 3D-printed miniature model of Elon Musk and the xAI logo are seen in this illustration taken January 23, 2025. REUTERS/Dado Ruvic/Illustration/File Photo NEW YORK (Reuters) -Elon Musk's xAi is increasing the yield it is offering on a $5 billion debt raise led by Morgan Stanley, a source with knowledge of the matter said on Friday. xAi is offering to pay 12.5% yield on $3 billion in bonds, said the source who asked for anonymity to disclose non-public information. Previously, sources told Reuters the company had offered a 12% yield. xAi is also offering 12.5% fixed yield on a $1 billion term loan and set to price a $1 billion term loan B at 725 basis points over the Secured Overnight Financing Rate, known as SOFR. The term loan B is set to be priced at a discount of 96 cents on the dollar, the source said. The initial offering on the securities was 12% on the fixed loan and 700 basis points over the SOFR on the floating rate loan. Junk-rated bonds paid an average yield to maturity of 7.602%, according to ICE BofA High Yield Index. The deadline for investor commitments was extended from Tuesday to Friday and allocations will be done one day after closing, the source said. If the deal closes on Friday, allocations will happen on Monday. An increase in the yield offer could mean that investors had probably agreed to buy the debt only for a higher yield. The borrower also has lesser flexibility on pricing when investor demand is modest. The xAI offering, which was reported on June 2 as Musk and U.S. President Donald Trump traded barbs over social media, did not receive overwhelming interest from high-yield and leveraged loan investors, Reuters reported earlier this week. Unlike Musk's debt deal when he acquired Twitter, Morgan Stanley did not guarantee how much it would sell or commit its own capital to the deal, in what is called a "best efforts" transaction, according to one person familiar with the terms. xAi did not immediately respond to a request for comment. Morgan Stanley declined to comment. (Reporting by Tatiana Bautzer; Additional reporting by Matt Tracy; Editing by Mark Porter, Alexandra Hudson)
