June 9, 2004
By Thomas Thale
THE City of Johannesburg is on track to issue a second municipal bond to raise R1-billion, which will help restructure its debts and finance its capital expenditure.
The proposed bond received a vote of confidence this week when Fitch Ratings, an international rating agency, announced it had assigned it a rating of AA-. This is better than the City's own rating of A-.
The Development Bank of South Africa (DBSA) and the International Finance Corporation (IFC) are to act as guarantors for the bond.
Because of its longer tenure, the second bond had to be guaranteed by "institutions with a much higher credit standing than that of the City in order for the bond to be attractive to potential buyers", said Jason Ngobeni, treasurer of the city. The new bond will be issued towards the end of June.
Fitch said in a statement that it had improved the City's rating in recognition of "improvements in its financial planning procedures and its fiscal prudence" and the "40% partial guarantee offered on a several and not joint basis by the International Finance Corporation (IFC) and the Development Bank of Southern Africa (DBSA)".
This will be the second bond issued by the City in a space of three months. In April, the City successfully issued a R1-billion unsecured bond. Ngobeni said in a report to council that he expected the "refinancing of existing debt out of the proceeds of the first bond to be completed by the end of June". The first bond was oversubscribed by 50%. The new bond will have a tenure of 12 years, six years longer than that of the first bond.
Ngobeni said that since the first bond started trading in the secondary market, "the yield rate on the bond has declined from the setting of 230 basis points above government benchmark R153 by 12 basis points to 218 basis points". He ascribed the decline to "the charge that the investors have levied to the City as a result of it being a new issuer in the market".
A special council meeting will be convened towards the end of June to approve the final structure and price of the new bond.
Click here to download the presale report on the City of Johannesburg by Fitch Ratings
[In Adobe Acrobat format: 560kb]
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