The Standard Bank Corporate Bond Index (SBCI) is a fully invested, total return index, which is representative of the South African investment grade corporate bond asset class.

Says Robert van Eyden, SCMB Head of Fixed Income: "Given the growing amount of corporate bonds available, an index against which to benchmark liquid, pure corporate debt will add value to investors wishing to assess their own corporate bond portfolios."

He says this initiative combines SCMB’s quantitative skills and understanding of market dynamics to provide a representative total return index of investment grade corporate bonds. The Standard Bank Corporate Bond Index and the Standard Bank/AlexanderForbes Liquid Investment Grade Bond Index (LIBI) now comprise a suite of indices benchmarking the performance of two types of fixed income asset classes.

Van Eyden says that the South African corporate bond market has shown tremendous growth after a lull of 10 years since the first SAB issue in the early 1990s. In 2001, R14 billion worth of corporate bonds were issued and listed on the Bond Exchange of South Africa (BESA).

Listed pure corporate debt on BESA has grown by about 72% for the year ending March 2002 and listed debt in the banking sector, by about 34% over the same period. Besides the growth in volume of corporate debt, the number and types of issuers have expanded beyond parastatals.

Van Eyden says that R1 billion of subordinated Tier III bank debt was issued for the first time in June 2002 and the market is expected to issue up to R20 billion worth of corporate debt this year alone.

SCMB is extremely active in the corporate bond market. It is currently a market-maker for a number of corporate bonds and has acted as lead manager or joint lead manager for a number of recent corporate bond issues.

Standard Bank Corporate Bond Index (SBCI) features

• The first total return index for the South African corporate bond market.
• Index represents the economic performance of pure corporate, investment grade bonds.
• Transparency in terms of selection and composition.
• Selection criteria based on size and liquidity to facilitate best tradability of index components.
• Reselection of index constituents reported quarterly and effective a week later.
• Includes issues larger than R1 billion provided that average monthly turnover is at least 10% of notional.
• Flexibility to adjust to current market conditions.
• Sub-indices by credit quality and time to maturity.

The composition of the index will change quarterly with respect to bond constituents and/or weightings, as outlined in the SBCI Rules and Technical Specifications.

The SBCI encompasses:

• 55% of the market capitalisation of pure corporate bonds eligible for inclusion in the index on the basis of time from issuance and time to maturity; and
• 45% of the average nominal traded on the spot market over the past year of such eligible corporate bonds.

• 63% banking sector;
• 23% telecommunications sector
• 8% mining sector; and
• 6% transport sector.

• be issued by a corporation and have no government guarantee;
• possess fixed coupons and a fixed redemption (except in the case of eligible callable bonds);
• have been issued at least 6 months prior to inclusion, except in the case of a very large and liquid issue which may be included 3 months after issue;
• have at least one year to maturity (or first call) at the time the selection becomes effective;
• be rated investment grade or higher at the time of selection;
• have a current nominal outstanding issue size of at least R1 billion at the time of selection;
• have an average monthly turnover on the spot market over the 12 months preceding the selection date of at least 10% of its current nominal outstanding issue size; and
• have traded an average of 20 times on the spot market over the 12 months preceding the selection date.