Helmo Preuss

Pretoria - South Africa's Treasury on Friday released details of its the new RSA Government Retail Bond, the first of which will be issued on May 24 2004.

The Treasury said the 2-year retail bond would hold a fixed interest rate of 9.25%; the 3-year bond's interest rate would be 9.50% fixed; and the five year bond would have a fixed interest rate of 10.0%. Interest will be paid only on March 31 and September 30.

The first retail bond was a five-year bond bought by President Thabo Mbeki while the second was bought by Finance Minister Trevor Manuel, who jokingly said there would be a large need for the retail bond in order to fund the soccer infrastructure after South Africa wins the bid to host the 2010 Soccer World Cup.

Launching the retail bond, Phakamani Hadebe, head of assets and liability management at National Treasury, said that the government was launching the retail bond to give the South African public an opportunity to take control of their financial future as well as diversifying the government's funding sources.

The initial target group are the living standards measure (LSM) group 5 to 8, which is an upper to middle income group, which total 11 million South Africans. The target is to achieve 10% of total debt over the medium to long term equivalent to roughly R40bn.

Treasury operations officer Logan Wort said there would be a huge communication campaign to reach the majority of South Africans, to show that the retail bonds should be part of their savings portfolio as the personal savings rate has dropped from 9% in the 1970s to current levels just above 3%.

Manuel quipped that "just as the Belgium dentist was the stereotype for the buy and hold retail bond investor in Europe, so too should the South African taxi driver be the stereotype for the emerging market retail bond investor".

Edited by Fadia Salie

Finance24 - 14/05/2004 11:17 - (SA)