2011-04-01: Investors show strong confidence in Johannesburg's future
STRONG interest in the new institutional bond issued earlier this month signals a high level of investor confidence in the current state of Johannesburg's finances and its prospects for the future.
The City Manager of Johannesburg, Mr Mavela Dlamini says "there is strong confidence in the market and among investors" who have analysed the City's balance sheets and future strategies.
"Through their investment in the new bond – COJ07 – the investors have shown that they do not share the doom and gloom reporting triggered by political agendas," says Mr Dlamini.
He says the City of Joburg is thankful and appreciates involvement of investors and their continued support in financing the City's capital expenditure programme since the launch of debut bond issue -- COJ01 -- in 2004 and the cumulative bond issuance to date. The support from investors demonstrates confidence and a long term view taken on the City of Joburg.
The investors were particularly impressed by the commitment made by the City of Joburg to provide for redemption of all outstanding bonds through periodic contribution into the sinking fund. The City of Joburg redeemed its R1 billion debut bond COJ01 through the sinking fund and currently has assets in excess of a billion rand towards the redemption of bonds.
"There is high praise in the investment community for the way in which the City managed the global economic crisis and was able to keep services going and growing despite a significant decline in revenue income," says Mr Dlamini.
Subsequent to the global recession, the City's rating agencies Fitch and Moody's conducted reviews on the City's finances as well as the balance sheet and kept Johannesburg's ratings stable for both the short and long-term outlook.
Through COJ07, the City has successfully raised R850m towards the financing of capital expenditure for the 2010/11 financial year. This is the seventh successful institutional bond issued since 2004 and it is in line with the City's objective of raising funding at cost effective levels and reduction of the overall weighted average cost of borrowing.
Mr Dlamini says the support from investors demonstrates confidence in the long term future of Johannesburg. There are clear signs that the City's finances are stabilizing following the 2010 World Cup 2010 expenditure programme, and this in line with the first phase of the financial turnaround strategy.
The objective of this strategy is to restore high levels of cash reserves and reduce debt over the long term. This strategy, debated and adopted in Council, provides for a "stabilization" phase of 1 – 2 years, followed by a "consolidation" phase and, eventually long-term "sustainability."
"Clearly the investor community is of the opinion that we are on track to meet our goals, and they are demonstrating this by investing in our municipal bonds and by offering competitive pricing," says Mr Dlamini.
He says the report from the Auditor General for the financial year that ended on 30 June 2010 is still being finalised. "We expect some tough findings in the AG's report – but also significant recognition for the quality of our financial management."
Johannesburg is the only City in the country that has consolidated the accounts of its core administration with that of its agencies or Municipal-Owned Entities. The implication of this is that the City has to meet higher accounting standards that cover the entire spectrum of its activities.
Mr Dlamini says "it is simply not true" that the City has overspent on its Operating or Capital budgets as claimed by certain political party representatives. The draft financial statements, recently presented to Council, clearly shows that the City ended the 2010 financial year with a surplus of R2,9-billion.
City Power was the one entity that reflected an over-spend of R69-million required for the restoration of network and service connections caused by cable-theft and vandalism. This amount is, however, being recovered from insurance, but will not yet be reflected in the latest financial statements.
Johannesburg Water managed to spend 99% of its budget – which should be regarded as a considerable achievement, says Mr Dlamini.
Issued by:
The City of Johannesburg
Enquiries:
Gabu Tugwana
0824955673
