The liquidation of First Strut (Pty) Ltd. following the murder of its chairman in June has cut sales of high-yielding debt in South Africa as investors shun the risk of more corporate bond defaults

First Strut Default Jolts High-Yield Market: South Africa Credit

By Renee Bonorchis  Sep 2, 2013

The liquidation of First Strut (Pty) Ltd. following the murder of its chairman in June has cut sales of high-yielding debt in South Africa as investors shun the risk of more corporate bond defaults. First Strut, a building company also traded as First Tech, applied for provisional liquidation on July 16 after Chairman Jeff Wiggill was found dead with bullet wounds next to his Bentley in Soweto, southwest of Johannesburg. In 2011 the company sold 925 million rand ($90 million) of floating-rate notes due September 2016 at 550 basis points above the three-month Johannesburg interbank agreed rate, which was 5.13 percent on Aug. 30. High-yield emerging-market bonds have fallen 575 basis points in 2013, according to Bloomberg indexes.“High-yield transactions that were on the table and far advanced or in the pipeline have disappeared,” Eyal Shevel, head of corporate ratings at Johannesburg-based Global Credit Rating Co., said in a phone interview on Aug. 22. “For a market that was very robust in the first half, First Strut has caused sentiment to turn negative.”

South African companies sold $15.1 billion of bonds in 2012, the most on record. Corporate issues this year are at the slowest pace since 2010 at $7.54 billion, data compiled by Bloomberg shows. Only two high-yield notes, which are bonds rated below investment grade, have been sold, compared with five in 2012. High-yield issuance increased 35 percent this year through August to $329 billion globally, compared with the year-earlier period, according to data compiled by Bloomberg.

Unsustainable Losses

Wiggill’s death left a web of transactions that had to be unraveled by court-appointed managers, who concluded that the company’s opaque overhead structure amid a weak economic climate had left First Strut with unsustainable losses. Liquidation procedures are ongoing.

Apart from the First Strut fallout, Africa’s biggest economy is beset with rising inflation, the world’s worst-performing major currency against the dollar, rising borrowing costs and a labor strikes. Emerging-market assets have been under pressure since the U.S. Federal Reserve said in May it may start reducing its bond-purchase program.

“It’s important not to taint the good standing of many of our corporates with the debacle of First Strut,” Heather Jackson, chief executive officer of Cape Town-based Atlantic Specialised Finance, said in an e-mailed response to questions on Aug. 23.

Non-rated Debt

Yields on South African benchmark government debt due December 2026 fell four basis points, or 0.04 percentage point, to 8.43 percent by 12:28 p.m. in Johannesburg after rising to the highest since January 2012 on Aug. 22. The rand has weakened 17 percent against the dollar this year, the worst performer of 16 major currencies tracked by Bloomberg. It strengthened 0.8 percent to 10.2007 per dollar.

Last year, Idwala Industrial Holdings Ltd. a Johannesburg-based producer of lime and calcium carbonate, was the biggest issuer of non-investment grade credit in South Africa with almost 1.5 billion rand in debt, according to research compiled by Johannesburg’s Nedbank Group Ltd. (NED) There have been no sales of non-investment grade debt since June, according to research by Rand Merchant Bank, which is also based in the South African city.

“It’s highly leveraged and unlisted,” Shevel said. Idwala, owned by private equity companies including Ethos Private Equity Ltd. and a unit of Old Mutual Plc (OML), had debt that was four times greater than its annual earnings by the end of December, according to a report by Global Credit Rating.

Privately Placed

Idwala has “four or five bondholders” and the notes don’t trade, Peter Buchner, the company’s head of treasury, said by phone on Aug. 22. The debt was privately placed and the company won’t be issuing more bonds this year, he said. Buchner didn’t immediately return a message left at his office on Aug. 30.

First Strut owed about 2.5 billion rand to creditors including South Africa’s five largest banks and six of the country’s fund managers. Global Credit Ratings gave First Strut’s bonds an investment-grade BBB rating, higher than the company’s non-investment level. Calls made to the numbers for First Strut’s office, published on its website before it was taken offline, didn’t connect on Aug. 30.

“Within the listed investment grade universe, there had never been a corporate bond default,” Jackson of Atlantic Specialised Financesaid in a note to clients. “The First Tech default on senior secured bonds has now tarnished this.”

Before the company collapsed it didn’t show it was compliant with South Africa’s corporate governance code, King III, according to Jackson. The chairman, Wiggill, was an executive and said to be solely responsible for the group’s financial affairs, while First Strut’s auditor was a little-known U.K.-based company, she said.

“Alarm bells should have rung,” she said. “It’s an important lesson to us all, no question, but defaults should still be expected to be rare events.”

To contact the reporter on this story: Renee Bonorchis in Johannesburg at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

One Response to The liquidation of First Strut (Pty) Ltd. following the murder of its chairman in June has cut sales of high-yielding debt in South Africa as investors shun the risk of more corporate bond defaults

  1. John Louw says:

    Interesting that Bedfordview, where the auditor of First Strut is situate, is now part of the UK (similar to Gibraltar I guess).
    The biggest problem here was the absolute failure of the institutional investors to perform any form of due diligence before investing pension fund money in this junk bond in flagrant breach of Reg 28 of the Pension Fund Act. The fact that this bond was listed and sold by a “Big Swinging Dick” of an investment banker is criminal. The Regulators of the JSE/BESA should be investigating this vigorously. The muppets never do however!

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