20 July 2007

By Ndaba Dlamini

The City of Johannesburg has launched South Africa’s first municipal retail bonds which will be on offer to the public for a month.

Otherwise known as Jozibonds, they can also be bought by companies, close corporations and other legal entities. They are intended to raise funds to build much-needed infrastructure and to encourage a culture of saving, according to the mayoral committee member for finance, Parks Tau.

Speaking to the media on Tuesday, 7 August, Tau said the initial offer for the subscription would close on 7 September, with the date of issuing the retail bonds to successful subscribers and listing on the JSE scheduled for 21 September.

"The issue of the retail bonds follows the successful issue of four bonds totalling R3,9-billion in the past three years. With the issue of the new retail bonds under the City's R6-billion Domestic Medium Term Note Programme, we are looking at a maximum issue amount of R1-billion and a minimum of R300-million."

The cash received from the bonds issue would help the City to accelerate service delivery in terms of building better roads, new stadiums for 2010 and clinics, and providing clean water and sanitation, Tau said.

Describing the retail bond issue as an historic initiative, Executive Mayor Amos Masondo said the City scored a first by being the only city in Africa to issue retail municipal bonds that would be listed on the JSE. He called the bond "a win-win investment".

"On the one hand it enables the public to invest in local government and raise extra money in the process. The City, on the other hand, will be able to raise loans from the residents, have a sizeable capital budget and build permanent works such as roads and houses," he said.

Backed by Johannesburg's credit, the retail bonds will be listed on the JSE, which will regulate the City's conduct as issuer. The listing will also ensure that the investment is safe.

Tau said there was a minimum investment of R1 000, with the option of two-, three- and five-year maturities. The three categories of the bond would attract interest commensurate with their respective terms of investment. They would be priced using the three-month Johannesburg Interbank Agreed Rate (Jibar) as a benchmark.

Masondo said the low entry level of just R1 000 made these retail bonds very affordable, especially as no fees, commissions, charges or costs were payable when purchasing the bonds and holding them to maturity.

"It is important to note, however, that a small penalty of 1,5 percent will be levied if the funds are withdrawn before the investment matures. Given this fact, we are encouraging the investors to hold on to their bonds until maturity."

The first quarterly interest payment will be made three months from the date of listing on the JSE through electronic transfer directly into the bondholders' designated bank accounts.

Because not many residents are knowledgeable about retail bonds, the City will deploy 30 Jozibonds ambassadors to communities like Alexandra, Soweto, Orange Farm and Diepsloot. These Jozibond ambassadors will speak to individuals and groups such as stokvels, kitchen societies, teachers and taxi associations.

Tau said the Jozibonds, compared to government issue bonds which are fixed rate bonds, would ensure that residents "make more money". "Jozibonds operate at a fluctuating interest rate and don't incur interest rate risk like retail government bonds."

Investors – South African citizens over 18, stokvels or legal entities – can buy Jozibonds at any South African Post Office in Gauteng, through a Standard Bank financial consultant or a JSE broker. All prospective investors need to provide their bar-coded identity documents, a bank account at a recognised South African financial institution and proof of residence. Legal entities need to produce Financial Intelligence Centre Act (Fica) documents.

Masondo said that on 31 May 2006, the City had successfully issued a fourth bond (COJ04). In addition, its long-term credit rating had been upgraded to A+ by Fitchratings, an international rating agency, and was rated ZaA+ by CA Ratings.

"On this note, we call on all citizens and residents to partner with local government and to invest in the future of the City of Johannesburg," he said.

Source: joburg.org.za