Neil Fraser
April 15, 2004
ANOTHER important milestone for the City recently - for the Metro actually but the inner city will also reap the benefits.
On Tuesday 6 April the Executive Mayor Amos Masondo and the city's top finance team - Councillor Parks Tau, mayoral committee member responsible for finance, strategy and economic development; Roland Hunter, executive director of finance; Jason Ngobeni, City Treasurer and City Manager Pascal Moloi - announced that the City had successfully launched its first municipal bond in the value of R1-billion. That's a lot of dosh in anyone's language.
It is in fact the first bond issue of its kind under the new municipal dispensation and the first municipal bond since the democratic elections a decade ago.
At the media briefing one reporter who identified herself as a 'non-financial journalist' asked the council team to explain in simple language just what a municipal bond is. Ngobeni adroitly provided an example in the private sector where a company would offer shares to the market in order to raise working capital - a municipal bond being similar except that it has to be repaid within a prescribed time period and, of course, it bears interest. The bond in question matures in 2010 and yields a premium of 2.3% more than the current R153 government bond which matures at the same time.
The R1-billion bond was taken up by fourteen investors including money managers and banks. The offer was over-subscribed by 1.5 times reflecting the growing confidence in the City by the capital market. This is because of the City's steadily improving financial position and short-term liquidity.
The international rating agency, Fitch Ratings, upgraded the city's long term rating from BBB+ to A - which effectively reclassified the City from "adequate ability to repay debts" to "a good credit risk".
Another rating agency, CA-Ratings explains its long term "A" rating as reflecting "Joburg's diversified economy with sound growth prospects deriving from the city's position as South Africa's business capital and main financial and economic centre.
Reflecting the importance of the local economy at the national level, Joburg is the seat of more than 70% of corporate headquarters in the country and contributes 16% of national GDP while having only 7% of the national population.
The main business activities are finance and business services (32%) followed by trade (21%) and manufacturing (20%) while employment varies between 22% and 19% for these activities. City of Joburg is the largest metropolitan municipality with a population of 3.3 million people in 1 million households."
So, what's the fuss about and where's the money going? Well, the fuss is about the fact that the Council would previously have been looked at, in private sector terms, as hopelessly undercapitalised in terms of servicing its assets. This has resulted in very little investment in the maintenance of infrastructure or provision of new. This has in turn manifested itself in constant outages in electricity supply, traffic light failure, etc etc.
Our infrastructure has not been maintained properly for years. Not because of neglect but because there just hasn't been the money available. Overall capex in 1998/99 was a miserable R3.1-million. In 99/00 even that dropped marginally to R2.95-million. By the 2003/04 financial year R384.7-million was allocated for infrastructure capital projects. Of this 82% was allocated to eradicating backlogs, only 11% was allocated for strategically identified intervention projects and an insignificant 7% was allocated to maintaining and protecting existing infrastructure.
A city the size of Johannesburg and with a backlog of inequitable spending historically, should be investing a great deal more in its maintenance and infrastructure. In addition, our past inequities demand that we balance the development of previously disadvantaged areas with maintaining existing infrastructure whilst also catering for growth.
So the capex requirements for the 2004/05, 2005/06 and 2006/07 financial years all exceed R2 billion and start to address the critical issues seriously. But these capital investment requirements are in fact too large for traditional bank loans, hence the bond issue.
This bond issue and, undoubtedly more such issues to follow, will allow desperately needed capital investment to take place again. Secondly, the money raised will also be used to refinance existing debt borrowed when interest rates were not as favourable as at present. This will have the effect of saving about R20 million per annum on its interest bill.
All in all, the bond issue is a notable and positive move forward that will enable the city to continue to focus on the achievement of its vision.
I don't know about you, but I have found the pace of the first quarter of 2004 exhausting. Years ago I used to feel that the first quarter was just a gentle warm-up for the balance of the year, now the Christmas season doesn't seem to slow anything down, you just start the next year busier than ever. Or is it just age catching up on me?
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