April 7, 2004
By Thomas Thale
JOBURG'S launch of the first municipal bond under new legislation received an overwhelmingly positive response from the market as investors jostled to get a piece of the cake on Tuesday.
Johannesburg Executive Mayor Amos Masondo hailed the issue as a "historic moment for the City of Johannesburg".
City officials with the bond advisors
Pegged at R1-billion, the issue was oversubscribed by 50 percent by the end of bidding. This means the City could have easily raised R1,5-billion had it wanted to. The bond was not guaranteed by the government nor secured by City assets.
"Bid volumes in excess of the authorised R1-billion were received, resulting in an over-subscription of 1.5 times," confirmed Parks Tau, councillor responsible for finance, strategy and economic development. The six-year bond was issued at a rate of 230 basis points above the benchmark, which in this case is government stock.
"It is encouraging to note that corporate South Africa, in particular the capital markets, has shown such confidence in the City," said Tau.
Jason Ngobeni, City Treasurer, said that proceeds from the bond would go towards refinancing the City's debts and funding capital expenditure. According to Ngobeni, the City entered into onerous debt arrangements in the late 1990s, at a time when it was experiencing financial distress.
Part of the bond will therefore go towards refinancing these debts. Tau said refinancing its current debt obligations through the bond would save the City about R20-million annually over the next six years.
The rest of the bond will be used to finance the development of infrastructure in the city. Funding from the bond, said Masondo, "will help us access capital which will enable us to meet the demands to expand and maintain our infrastructure".
"In line with our government objective to improve the quality of life for citizens and to ensure a better life for all, this bond issue will greatly enhance our capacity to deliver services," Masondo added.
Joburg has now become the first municipality to issue a bond under the new Municipal Finance Management Act.
Municipal bonds are debt obligations issued by government entities to investors to generate income to meet their capital expenditure. The issuer of a bond guarantees to pay interest (coupons) annually and to repay the principal debt on a specified date. The interest paid on a bond is tax-deductible. Investors are paid their full funding at the end of the specified term. Issuing bonds is standard practice for cities in the developed world.
According to Ngobeni, the City will issue a 12-month bond "in a matter of weeks".
Permission to use web site material
Publishers may use material from this site free of charge, as long as:
- Credit is given to either the "City of Johannesburg website
(www.joburg.org.za)" or to "Johannesburg News Agency
(www.joburg.org.za)";
- If the article is used online, a link is provided to the original
article on this website;
- The name of the article's author is acknowledged;
-
The webmaster is informed of how and where the material is used (fill
in this brief online form).
Johannesburg News Agency is operated by BIG Media at 011-484-1400 |
