Financial services firm Standard Bank of South Africa has issued its first listed bond in South Africa using the newly established South African Rand Overnight Index Average (ZARONIA) floating interest rate benchmark.

ZARONIA is the designated key successor rate for the Johannesburg Interbank Agreed Rate (JIBAR), and is being phased in to address potential weaknesses in the current floating rate setting mechanism, the bank says.

The JIBAR has been in place since 1999 and is based on daily interest rate quotations provided by South Africa’s largest banks. ZARONIA will replace JIBAR and is based on underlying transactions; thus reducing the possibility of rates not reflecting market trading levels.

With the JSE and South African central securities depository Strate having confirmed their readiness to process and list ZARONIA-linked bonds on May 19, Standard Bank issued a R100-milion, three-year bond, priced at ZARONIA plus a margin of 102 basis points on May 21.

This positions Standard Bank at the forefront of the financial sector's transition to more robust and transparent interest rate benchmarks, it says.

The transition from JIBAR to ZARONIA, which is being managed by the South African Reserve Bank's Market Practitioners Group (SARB MPG), aims to shift all JIBAR-linked transactions to alternative reference rates.

This initiative mirrors similar moves in the US and UK to replace benchmarks, like the London Interbank Offered Rate, with more reliable standards, Standard Bank says.

Since 2018, the SARB MPG has been diligently planning this transition, with several milestones set before the complete phase-out of JIBAR by the end of 2026.

The issuance of ZARONIA-linked bonds marks a critical step in developing the ZARONIA market and gaining acceptance for the new interest rate benchmark, the bank notes.

Further, Standard Bank has been proactive in the ZARONIA initiative, with Standard Bank of South Africa Treasury and Money Markets head Paul Burgoyne spearheading the MPG transition planning and coordination workstream.

“We are pleased to have opened the new ZARONIA market with this bond issue. ZARONIA will strengthen the integrity of the South African interest rate market and align us with other leading global benchmarks for currencies, including the US dollar and the UK pound,” he says.

“Standard Bank is to play a leading role in moving the South African interest rate market into a new era. This new, global standard interest rate regime will present opportunities for our customers,” adds Standard Bank global markets head Zaid Moola.