April 20, 2006
By Anish Abraham
FOLLOWING its successful issuing of three municipal bonds, the City of Johannesburg has selected banking group Standard Bank as the lead manager and adviser for the issue of its fourth.
"We have appointed Standard Bank as lead managers and advisers from among the banks on our panel of approved lead managers," said Jason Ngobeni, the City treasurer.
The issue of the fourth bond was first announced during a Municipal Bond Conference in Sandton, which Ngobeni described as encouraging.
Barnard Jacobs Mellet Securities, the financial services company, will also be involved in the transaction, though its role is still to be finalised.
The City has to appoint a lead manager and adviser from its panel of approved banks before raising capital through debt instruments, be it short-term commercial paper or medium-term bonds.
According to Andrew Pamphilion, the director of debt origination at Standard Bank, lead managers and advisers assist with the necessary documentation; help determine the nature of the instrument, such as pricing and maturity; co-ordinate road shows; and help distribute the instrument to investors.
The bond will be unsecured, of not less than R1-billion in value, and will be issued as part of the City's Domestic Medium Term Note Programme. The programme allows the City to issue up to R6-billion in bonds until 2010, without having to provide additional documentation before each issue.
It has already issued a bond under the programme, the CoJ03, an unsecured R700-million bond maturing in eight years. That bond was oversubscribed by almost four times, with investors bidding R2,6-billion on it.
Among the biggest subscribers to the City's bonds are banks' conduit funds, which had generally tended to shy away from investing in municipal bonds, or only invested within a certain credit-risk bracket.
Joburg's credit ratings are also under review by two independent credit ratings authorities and new ratings are expected by the end of the current financial year.
The new bond issue is an opportunity for the City to widen its investor base. "We had new investors coming on board for the last bond, but we feel there is still scope for us to get additional investors again this time around," Ngobeni said.
Pamphilion said the exact structure of the bond and its value would still be decided following consultations between the City and the bank, which have already started.
The City is reviewing the R6-billion limit on its programme, as well as the denominations in which bonds will be available. And, though the forthcoming bond will only be available to institutional investors, the City is considering issuing a retail bond in the future.
Retail bonds would be made available in smaller denominations to make them more affordable for individual investors. Ngobeni said it was a way in which to get residents to invest in their own city while saving money.
An encouraging sign in the market was the issue of a long-term bond by the national electricity provider, Eskom, which matures in 2033. This shows there is investor appetite for local long-term bonds not issued by the national government.
Ngobeni said pressures felt by municipalities regarding infrastructure development meant they had to seek alternative and more creative ways of raising capital. Critical to the success of the Accelerated and Shared Growth Initiative for South Africa, or Asgisa, was the performance of the economies of the country's larger metros; providing quality infrastructure was a key requirement.
"Municipalities are net borrowers, and to fund your capital expenditure you need a sustainable source of capital - the best place to source those funds is on the capital markets," Ngobeni explained.
As such, he said the national Treasury was very supportive of the City's foray into financing part of its own needs in a transparent and effective manner.
He said issuing municipal bonds might in future become a vital source of funds to advance capital expenditure spending, along with other innovative methods such as asset-backed funding and public-private partnerships.
"However, this does not mean that we will blindly disregard funding opportunities from banks, development agencies and other financial institutions."
As an example, Ngobeni pointed to the R320-million long-term loan from Agence de Francaise de Developpement, to complete the installation of water meters in Soweto as part of Operation Gcin'amanzi.
Although he was unable to say for certain when the bond would be issued, Ngobeni said it would happen in the "coming 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 |
