By Thomas Thale
APRIL will see the City issue the first bond under its pioneering public borrowing programme - an initiative to raise R6-billion from capital markets over a five-year period.
Through its Domestic Medium Term Note programme, the City seeks to raise debt instruments to meet its capital expenditure needs.
The programme will get underway towards the end of the month when the City issues an unsecured, institutional bond worth between R500-million and R700-million.
Advertisements calling for public comment on the proposed bond issue have already been placed in various media and public libraries, says City Treasurer, Jason Ngobeni, and the public has until 8 April to raise objections to the issue.
The Municipal Systems Act requires municipalities to notify the public of their intention to incur debt.
Ngobeni also states that the City intends to issue a retail bond under the programme before the end of the year. "We are at an advanced stage of research and feasibility for a possible retail bond issue before the end of the calendar year." The retail bond, adds Ngobeni, will offer an ideal investment opportunity for Joburg residents seeking to improve their city while making profit in the process.
"This fits in with the medium-term borrowing outlook of the City and will go a long way to meet the needs of residents looking for opportunities to invest in this scheme. If you invest in the City, you invest in your own capital infrastructure, but also in an instrument that's safe and will yield comparatively high returns."
Following the successful issue of two bonds amounting to R2-billion last year, the City announced plans to develop a five-year bond issue programme to raise more money to meet its capital projects needs.
Ngobeni says R1,2-billion of the money raised "went towards refinancing existing debt on an early debt redemption basis" and the remaining R800-million was used as part of the approved borrowings for capital expenditure.
An additional R300-million was raised through bank loans.
Of the total long-term public borrowings raised last year, R300-million was carried over to fund capital expenditure for the 2004/2005 financial year. He estimates that for the current financial year, which ends in June, the City has to raise between R500-million and R700-million. Details about bonds to be issued in subsequent years will be made public as the programme unfolds, says Ngobeni.
Early this year, the City appointed a consortium made up of Standard Bank, Barnard Jacobs Mellet and Legend Capital to set up a Domestic Medium Term Note programme.
Another consortium comprising Absa, Barclays Bank, and Vunani Capital was chosen to lead the inaugural issue under the programme.
In addition, Ngobeni says the City has appointed a lead panel comprising five banks that will each be given an opportunity to lead an issue during the duration of the R6-billion programme.
The bond programme represents the City's efforts to introduce a number of instruments to diversify its long term borrowing plan. "From now until 2010, the City will consider a variety of instruments with different terms and structures to diversify its debt portfolio and to meet investor preferences," says Ngobeni.
He adds that the City will maintain a flexible approach in borrowing from the domestic market. "We will monitor market conditions to ensure that we issue bonds at the right time and achieve the best borrowing rates and terms."
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