By Thomas Thale

THE City of Johannesburg is poised to raise R6-billion through short and medium-term debt instruments to finance its capital investment plans over the next six years.

The City is developing a Domestic Medium Term Note programme which will enable it to "issue unsecured and secured registered funding instruments of any nature as and when necessary with an aggregate principal amount that cannot exceed the authorised programme amount", said Jason Ngobeni, city treasurer.

The programme is a funding vehicle that will underpin the implementation of the City's annual borrowing programmes.

Ngobeni said the programme would entail the issuing of three main instruments: institutional and retail bonds, commercial paper (with a maximum maturity of one year) and bank loans.

"Joburg will use this funding approach instead of the regular issuing of debt on a project-by-project basis," said Ngobeni.

He said the main advantage of the programme was that the instruments were far cheaper to use than outright bond issues and offered greater flexibility that allowed the city to issue appropriate debt instruments given prevailing market and interest rate conditions

The programme, as well as notes issued under it, will be listed on the Bond Exchange of South Africa

Parks Tau, councillor responsible for finance and economic development in the city, said the programme would have a greater level of transparency as it "eliminates the surprise element because investors will know upfront the funding needs of the city within the period of the programme."

Tau added that in the near future, the City would be "appointing advisors, arrangers, market makers and other specialists", and would also be "considering other forms of funding such as public private partnerships, securitisation and other forms of balance sheet funding for capital projects".

The proceeds from the bond issue will be invested in capital projects such as the renewal of electricity and water infrastructure, roads and inner city regeneration. The City also plans to prioritise labour-intensive projects to create jobs for its residents

In the course of 2004, the City has used its improved credit rating to issue two bonds worth R2-billion. In April, the City successfully issued a R1-billion unsecured bond. In June, the City issued another R1-billion bond which carried a 40% partial guarantee. The market reacted with enthusiasm to the two municipal bonds, with both of them being oversubscribed.
Source: Jonews