April 5, 2004
By Thomas Thale
IN a move that heralds a new era for municipalities across the country in raising capital, the City of Johannesburg will on Tuesday issue the country's first short-term bond worth about R1-billion under the new Municipal Finance Management Act.
The City announced its intention to issue a bond last year, to raise much-needed capital to address its infrastructural backlog.
The six-year bond will be followed by another 12-year bond "in a matter of weeks", said Jason Ngobeni, city treasurer, and other major cities are expected to follow suit in what is standard practice for cities in the developed world.
Bidding on Tuesday will open at 9am and close at 12am, with the UK-based Barclays Bank PLC, lead managers of the bond, tabling their recommendations before a special council meeting on Wednesday for approval.
Municipal bonds are debt obligations issued by government entities to members of the public to generate income to meet their capital expenditure. The issuer of a bond guarantees to pay interest (by means of coupons) annually and to repay the principal debt on a specified date. The interest paid on a bond is tax-deductible.
The issue of bonds will enable the City to eradicate its Capex backlog of over R10-billion. Ngobeni said that some of these capital projects can generate additional revenue for the City, while others will improve the social conditions under which most people live.
Barclays Bank PLC was appointed to lead a consortium advising the city on the bond, with African Harvest Capital and Ernst and Young Corporate Finance as the other partners. Absa was brought in to underwrite a portion of the bond.
City representatives sold the idea to potential investors in three national roadshows, which highlighted its strengthened financial position after Fitch and CA Ratings upgraded the city's credit rating last year.
Ngobeni said the response from the market had been overwhelming and expressed optimism that the bond would be "oversold".
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