About City Bonds
The City of Johannesburg has, issued seven bonds since 2004. Since then, the municipal bond market in South Africa has expanded significantly due to the need for the metros cities to finance large scale infrastructure projects in the context of limited resources from the national government. This direction is likely to be maintained in the medium term, given the interest shown by domestic investors in this relatively new class of debt. This positive growth prospect affirms bond issuance as a major source of funding over and above traditional bank lending.
The bonds, all listed on the Bond Exchange of South Africa, are:
- COJ 01 - A R1-billion, unsecured bond maturing in six years. Launched in 2004, it won the coveted Bond of the Year Award from Besa in that year. This bond has since been redeemed.
- COJ 02 - A R1-billion, partially guaranteed bond maturing after 12 years. It is partially secured by the International Finance Corporation and the Development Bank of Southern Africa. It was issued in June 2004.
- COJ 03 - A R700-million, unsecured bond maturing after eight years of issue. It was the first to be issued as part of the City's Domestic Medium Term Note programme. It was issued in April 2005.
- COJ 04 - A R1,2-billion, unsecured bond maturing in 12 years from issue and the second to be issued as part of the Domestic Medium Term Note programme. It was issued in May 2006.
- COJ 05 - A R1,8-billion, unsecured bond maturing in 15 years from issue; June 2023. The bond was tapped December 2008 for R468-million.
- COJ 06 - A R90-million, unsecured bond maturing in December 2015.
The Domestic Medium Term Note (DMTN) programme allows the City to issue up to R6-billion in municipal bonds up to 2010, without having to provide additional documentation ahead of each new issue.
Municipal bonds are debt obligations issued by government entities to members of the public to generate income to meet capital expenditure.
The issuer of the bond guarantees to pay interest (coupons) at set periods and to repay the principal debt on a specified date. The interest paid on the bond in tax deductible. Issuing bonds is standard practice for cities in the developed world.
Johannesburg is rated by two multinational credit agencies. Improved credit ratings help reduce debt servicing costs as a percentage of overall expenditure.
Joburg uses most of the funds raised by the bond issues to finance its capital expenditure backlog. The City's capital expenditure backlog is estimated at R8-billion.