April 4, 2006
By Tammy O'Reilly
THE country's major municipalities have been invited by the City of Johannesburg to a conference on municipal bonds.
The day-long gathering will look at the processes involved in and the benefits of issuing municipal bonds.
Nine major municipalities, such as Ekurhuleni, Tshwane, Buffalo City, Cape Town, Nelson Mandela, eThekwini and Msunduzi, will be attending the conference.
The objective of the conference is to present municipal bonds as a funding alternative to reducing the countries large infrastructure backlogs and finance service delivery assets. They will get sound professional advice on the advantages of municipal bonds and the finance options that are best suited to their institutions.
Chief financial officers, finance directors, asset managers and stakeholders in financial institutions will make presentations covering, among other things, the importance of credit ratings and the different types of bonds that exist. Absa Bank, the sponsor, will make a key presentation on the best economic conditions under which to issue a bond and share their experience in leading and advising the City's bond issues. The City Treasurer, Jason Ngobeni will be presenting on the City of Joburg's funding strategy through the bond programme.
So far Johannesburg has issued three municipal bonds totalling R2,7-billion. The money is raised from a pool of investors, including Investec asset management futuregrowth, Metropolitan and Rand Merchant Bank to name a few, at competitive interest rates and is paid back under terms and conditions that are usually more suitable than those offered by banks.
This money is used solely for infrastructure development, like building houses and roads.
"The conference is being held as a means of presenting bonds as an ideal way of raising funding from the debt and capital markets other than banks," explains Mosilo Mothepu, the City's Head of investor relations.
"Joburg is the first municipality in the country to issue bonds and we have seen great benefits from it, so this conference is a way of sharing our experiences and showing other municipalities what options are available to them."
She says that most municipalities already have loans with banks, but there is a limit to the amount of money a bank can lend an institution. Bonds are issued of more than R500-million, making it easier for municipalities to acquire more money faster, to meet the needs of their cities.
"Because there is a broader investment base where bonds are concerned, there is a lesser chance of exhausting the amount you can borrow," Mothepu says. "Of course, not everyone qualifies for a bond and that is why the conference will address topics like the importance of ratings."
There are several benefits to bonds, she explains, including, it is a cheaper source of funding, matching liabilities with assets, municipal assets have a long life span, it only makes sense for financing to match that period and there's a broader investor base. Municipalities also need to start to diversify their source of funding. This is necessary to speed up the delivery of infrastructure.
"This is the first conference of its kind, and we are very excited and proud to be influential in building a liquid and vibrant platform that [will] inform and enhance the various municipalities' take on municipal bonds."
The conference will be held at Fairlawns Boutique Hotel Conference Centre in Sandton on Wednesday, 5 April.
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