By Laura Cochrane and Garth Theunissen

May 19 (Bloomberg) — South Africa began selling a $1.5 billion Eurobond, $500 million more than initially planned, according to three investors approached by bankers managing the deal.

The 10-year debt will yield 375 basis points above U.S. Treasuries of similar maturity, said the investors, who declined to be identified. That is lower than the 387.5 basis points expected earlier.

The bond has been “launched” and the issue was “substantially oversubscribed,” Treasury spokeswoman Thoraya Pandy said in a phone interview with Bloomberg News. South Africa last issued dollar-denominated bonds in May 2007 when it sold $1 billion of 15-year securities. The 2022 bond yields 6.831 percent, or 345 basis points more than U.S. Treasuries, Bloomberg data show.

“It’s encouraging that they’ve raised more money than they initially expected, which shows that there is demand out there for higher-yield debt, particularly in hard currency,” said Vivienne Taberer, a portfolio manager who helps manage about $50 billion at Investec Asset Management in Cape Town. “South Africa also faces increased funding pressure this year because of the bigger fiscal deficit and this helps ease government reliance on the domestic bond market to some extent.”

South Africa’s budget deficit is estimated to widen to 3.8 percent of gross domestic product this year, the biggest in a decade, as the nation boosts spending on roads, ports, rail links, social welfare and stadiums in anticipation of hosting the 2010 FIFA World Cup.

Pricing

The nation’s long-term foreign-currency debt is rated Baa1 by Moody’s Investors Service, the third-lowest investment-grade ranking and on a par with Iceland and Russia.

Officials are “working on pricing issues,” Pandy said, declining to give details on the price, size or yield of the bond.

National Treasury Director-General Lesetja Kganyago said last week that the bond sale would raise as much as $1 billion.

The notes were expected to yield about 387.5 basis points more than similar-maturity U.S. Treasuries, a person familiar with the transaction said earlier today. A basis point is a hundredth of a percentage point.

The Pretoria-based Treasury appointed JPMorgan Chase & Co., Barclays Plc’s Absa Group Ltd. and Standard Bank Group Ltd., Africa’s biggest lender, to arrange the debt sale, Pandy said on May 6. The securities were marketed to investors in the U.S. and Europe over the pasat week, according to people familiar with the transaction who declined to be named.

South Africa may sell $3 billion worth of 10-year Eurobonds in the next three years, Lungisa Fuzile, head of assets and liabilities at the Pretoria-based National Treasury, said in an interview this month.

– With assistance from Patricia Lui in Singapore and Gabrielle Coppola in New York. Editor: John Kohut, Ralph Johnston.

Source: Bloomberg