Jo'burg counts on R1bn bond to get city back in shape

Posted On Monday, 05 April 2004 02:00 Published by
Rate this item
(0 votes)
GAUTENG'S R1bn municipal bond will be issued by the City of Johannesburg tomorrow

Political Correspondent

GAUTENG'S R1bn municipal bond will be issued by the City of Johannesburg tomorrow in a move that will see the city's ageing water, road and electricity infrastructure being refurbished.

The capital raised from the issuing of the bond will be used to whittle away at big capital spending backlogs on ageing infrastructure, estimated at about R8bn in central Johannesburg alone.

The bond, the first of its kind under the enacted legislation, will be approved by the municipal council on Wednesday and listed on the Bond Exchange of SA on April 13.

The six-year bond issue is expected to stimulate the creation of a much-needed municipal bond market in SA. Other municipalities, like Cape Town, are likely to follow suit by issuing bonds under the new Municipal Finance Management Act.

Until now municipalities have borrowed from banks and are required to secure loans with some form of investment, resulting in much-needed funds being locked away.

Part of the R1bn will be used for the refurbishment of water infrastructure in most parts of Soweto. This will involve fixing leaking water pipes and installing new meters.

One-third of the water allocated to the City by Johannesburg is unaccounted for. Most of the water is lost due to leaking water pipes in the Soweto area, resulting in huge financial losses for the city's treasury.

The remaining capital will be spent on tarring roads and fixing broken traffic lights.

A portion of the R1bn, however, will also be used to wipe out the city's debt.

This will be done through getting rid of the securities offered by the city to previous lenders, unlocking much-needed funds and enhancing the city's ability to raise new debt.

City treasurer Jason Ngobeni said on Friday at the prelaunch of the Johannesburg bond that the issuing of the bond would assist the city to access "much larger investor base and capital".

He said the credit limit placed on the city by the major banks was beginning to make it difficult for the city to remain financially sustainable.

"The problem currently is that you borrow much quicker than you pay off," he said.

The bonds would not have government guarantees, but Ngobeni said the municipality would rely on its strengthening financial position, which had seen its long-term credit rating raised to A- from BBB+ by Fitch Ratings.

The municipality had R350m cash on its balance sheet in the 2002-03 financial year, and expected to maintain this surplus position in the

2003-04 financial year, which ends in June.

Ngobeni said Barclay Capital had been appointed the lead manager for the issue.

The initial Johannesburg bond issue will be followed by a longer-dated paper of between 10 and 12 years.

Apr 05 2004 07:41:59:000AM Sphiwe Mboyane Business Day 1st Edition

Publisher: Business Day
Source: Business Day

Please publish modules in offcanvas position.