Following the recent launch of a Luxembourg-listed US dollar-based structured note programme, Standard Bank has released a series of US dollar-denominated products linked to credit derivatives. The note programme was created to offer credit-linked notes (CLNs), "providing exposure to otherwise inaccessible African credit and meeting growing African investor demand for portfolio diversification", according to Hennie Snyman, head of client solutions for institutional investors at Standard Bank.
The programme is designed to provide 'superior fixed-income returns', according to Snyman. "We see the Luxembourg listing of our structured note programme as an extension of our current offering that focuses on rand-denominated CLNs, which is well established and has been very successful in the South African market," said Snyman. "We are aiming to bring these products to institutional investors across the African continent as part of a strategy to expand on our product capability and deliver Africa-flavoured yield to institutional investment mandates."
Many institutional investors, both within and outside Africa, have not been able to access bespoke African credit and fixed-income opportunities, according to Snyman. "The Luxembourg listing of the programme is also a response to demand from clients seeking a simple means of access to some of these instruments; we believe CLNs offer just that," said Snyman. "The second main reason is to develop our coverage and tap more broadly into the credit, fixed income, foreign exchange and equity markets across the African continent. To achieve this, we are required to provide all flexible risk transfer mechanisms to capitalise on risk transfer opportunities. CLNs are a great mechanism for the distribution, sharing and repackaging of risk."
The bank's Stanbic subsidiaries across the continent are also developing their offering with Standard Bank seeking to tap into those pipelines, according to Snyman. "For instance, we could look to repackage a tranche of credit, if we don't necessarily have the appetite for the total risk on balance sheet," he said. "We would then make available some of that exposure to investors via the CLN mechanism. Typically, those kinds of opportunities are exclusive to the interbank market, and so we're providing a solution to cater for potential demand from institutional investors."
The Johannesburg-based lender has issued two 'pure access notes' that wrap the exposure of a local currency investment (eg Egyptian Treasury bills) into a US dollar-denominated, Luxembourg-listed note. "This simplifies access to local market fixed-income returns," said Snyman. "Investors in these notes carry local currency risk, but the potential yield is significant at, for example, around 16% for one year in Egypt. This high absolute yield compensates investors for the currency risk they take."
Offering exposure to local emerging markets provides an edge, however the possibility of rolling out the programme to advisors is somehow limited, according to Snyman. "Demand for CLNs from institutional investors continues to be high, but to replicate this kind of product in the retail market via broker dealer accounts would be difficult, as direct investment into bonds and treasury bills are generally precluded by regulation," he said. The rules are restrictive around risk and suitability, minimum denomination, so these products are generally deemed too complex for retail investors by regulators, according to Snyman. "Credit remains an institutional investor asset in Africa, whereas retail is more focused on equities," he said. However, demand for Africa and fixed-income ETFs from retail investors has increased, according to Snyman.
"African markets locally are focused heavily on government bonds and T-bills, but we see increasing demand for structured products," said Snyman. "We have the structuring capability and can deliver CLNs and other structured solutions to African as well as ex-Africa investors. We continue to work on our product capability and increase our offering with solutions that respond to needs from clients as opposed to pushing products into the market."
Standard Bank has plans to continue "expanding the credit opportunities" it offers and will issue "more products on the back of the new programme in the coming months", according to Snyman.
The bank's CLNs that are available to institutional investors include: StBankofSAfr 22/11/2027 Republic of Ghana 16.25% due 2026, StBankofSAfr 22/04/2037 Credit Linked & NGN/USD, StBankofSAfr 20/09/2018 Credit Linked & EGP/USD and StBankofSAfr 09/08/2023 EPG/USD & Credit Linked.
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