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SIMON BROWN: I’m chatting with Wafeeqah Lagerdien. She is head of debt capital markets at Futuregrowth Asset Management. Wafeeqah, appreciate the time.
We have seen strong 2025 vehicle sales; that has continued into this year. April was a bit quieter, but maybe that was more about public holidays.
If we look at, what, 70% of large vehicle sales now being imports, most notably China and India, does this change the local manufacturing base? Does it bring the credit sort of risk profile to finance lenders as we see the shift in the vehicle composition?
WAFEEQAH LAGERDIEN: Yes. Maybe just to paint a picture around the South African auto sector, we have quite a few OEMs [Original Equipment Manufacturers] –Toyota, Volkswagen, BMW, Ford, Isuzu and Mercedes-Benz – in this. They are all producers, manufacturers here in South Africa. But it’s only a subset of them that actually issue debt in the debt capital markets [DCMs].
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So from a broader sector-specific view, 2025 was a bumpy year for the sector. It increased by 13.7% for the year 2025. And April, yes, was lower than March because of all the public holidays. But if we look at April as a month, year on year it’s been the best year since 2013.
So it is a booming market, and we are seeing that shift in terms of consumers buying down, in the sense of the competition coming through from the Chinese manufacturers offering sort of mid- to high-end vehicles at a much more competitive rate. So we are seeing the composition moving more towards the Chinese vehicles.
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And from a manufacturing point, we are even seeing the Nissan manufacturing plant in Pretoria – the Chery Group is taking that over and will be refitting it for the SUVs. So yes, there has been a lot of change in the in the auto sector.
But from a debt capital markets perspective the issuers that come to market are not necessarily only the manufacturing arm but also include the finance books.
So when a consumer is looking for a vehicle loan – to purchase, for example, their Mercedes-Benz – that’s part of what they are raising funding for, to finance these vehicle loans.
Last year was a great year in the sense that consumers were benefitting from lower interest rates and the like; that really boosted their ability and their affordability to qualify for these vehicle loans. So 2025 was a good year, and 2026 is not too bad if you’re looking at the April figures over the last 10 or 15 years.
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And we’re seeing a lot of composition changes with the new entrants coming into the market.
SIMON BROWN: I was unaware that some of these OEMs – Toyota, Mercedes, Daimler – were actually raising money locally in ZAR, and actually getting really, really good prices, in some cases better than bank debt. I get why they need the cash. You’ve explained that to me. But the market really likes that debt.
WAFEEQAH LAGERDIEN: Yes. So on a standalone basis these OEMs are exposed to a lot of local domestic South African risk. But how they’ve structured their debt facilities is that they get guarantees from their parent holding companies that sit offshore. They sit in Germany, sit in Japan and the Chery company. So they can leverage off the credit quality of their parent that is now a large global company and has a presence across the globe. They rely effectively on the parental guarantee.
And on a national scale basis, those guarantees translate into, call it an AAA or AA+ rating on a national scale.
If you compare that to the banks, it is around a slightly lower rate, because obviously they also have a ceiling, a sovereign ceiling in terms of their credit rating.
So from a credit-risk perspective, because of the parental guarantee coming from offshore parents, they are able to attract tighter pricing than the banks are able to raise in the debt capital market.
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SIMON BROWN: Yes, that makes perfect sense. And the banks are sovereign – I always remember that the bank can’t have a higher than listed sovereign.
So you have seen the spread tightening. Demand is obviously pushed. The quality is undeniable. The demand then pushes the yields down because, of course, that bond has that inverse relationship. My question is going to be does the risk/reward still make it worth it? I suspect the answer is probably then yes.
WAFEEQAH LAGERDIEN: This is not just for the auto sector, but in the DCM market as a whole the credit spreads have been compressing for a number of years, and I suppose it’s a question in every investor’s mind around when will be the inflection point, when will spreads begin to rise.
So as a whole, credit does seem a bit more on the expensive side.
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SIMON BROWN: I suppose with that generally it is that risk/reward. And, to your point, if we are seeing, I don’t know, risk levels perhaps coming off, the market is perhaps paid less for it as risk comes off the table to a degree. That is how a bond market would work at a high level.
WAFEEQAH LAGERDIEN: Yes. If you look at the DCM space and the credit spreads across the board, across all the sectors, credit spreads have been narrowing for quite some time. I suppose a question on all investors’ minds is when the cycle will turn, when spreads will begin to rise because they are quite low and do appear to be quite expensive at this point in time.
The driver behind that is largely the imbalance between supply and demand, so there is a limited supply of debt issuance in the market – that is, the corporates or the OEMs coming to market – and there’s a lot of demand from investors. That’s one element that puts pressure on the spreads.
But if you look purely at the at the oversubscription rates, they are in auction, and you usually can raise the market in an auction and you can still see the demand is really high.
There are usually oversubscription rates of two to three times, sometimes higher. So there’s definitely demand from investors, even at these price levels.
Read: Fortress raises R1.06bn in oversubscribed debt issuance
If we look purely at clearing spreads and the demand from investors, one could assume that investors are of the view that they are being compensated adequately for the risk that they are taking.
SIMON BROWN: Ultimately everything is supply and demand, particularly the bond market – no different.
We’ll leave it there. Wafeeqah Lagerdien, head of debt capital markets at Future Growth Asset Management, I appreciate the time.
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