Road agency issues bonds to raise cash

Posted On Wednesday, 07 October 2009 02:00 Published by eProp Commercial Property News
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The South African National Roads Agency says debt investors are demanding a lower risk premium, helping to reduce its costs of borrowing.

Road InfrastructureThe South African National Roads Agency (Sanral), which is getting ready to tap the local bond market today, says debt investors are demanding a lower risk premium, helping to reduce its costs of borrowing.

CEO Nazir Ali told Business Day he hoped bond yields would remain “cheaper” when the road agency today issues bonds as part of its domestic medium term note programme, which carries a government guarantee.

Thus far, Sanral has raised almost R12bn to expand and upgrade SA’s national roads, particularly the Gauteng Freeway improvement Project.

It needs more than R40bn to fund its multibillion-rand capital projects ahead of next year’s Soccer World Cup.

Ali said the government guarantee had helped lower the state owned agency’s cost of borrowing. Without this explicit guarantee, Sanral is deemed risky and this encourages investors to demand a higher risk premium at a time when the liquidity crisis and credit crunch are lingering.

Ali said the state guarantee had reduced spreads by 40-50 basis points. Widening spreads indicate high risk and thus high borrowing costs, whereas narrowing ones have a reverse effect.

Ali said the agency last month issued its bonds at 70 basis points above a similar government bond with the same maturity.

In August, Sanral issued its first state-guaranteed bonds and raised R1,5bn. Last month it got R750m. Ali also said Sanral was always looking for alternative sources of funding.

He said the agency recently raised à120m through an investment bank, noting that this transaction did not expose the agency to foreign exchange risk. The agency would pay back this loan in rands and the interest rate was lower than the rate the agency was paying on its domestic bonds.

Ali said the agency last month awarded a tender value at R1,16bn to implement and operate a “free flow tolling system”.

Rating agency Moody’s said toll roads would play a pivotal role in Sanral’s expansion strategy. But it warned of rapidly growing debt burden and expenditure pressure from maintenance of ageing road infrastructure.

Meanwhile, Ali did not rule out international capital markets, but said the costs of borrowing must correspond to local costs.


Last modified on Thursday, 31 October 2013 10:56

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