In the area 3 – Cape Town

City of Cape Town issues second bond

The City of Cape Town said it has successfully issued a second bond of R1.2 billion.

"The bond was 1.5 times over-subscribed, reflecting the market confidence in the financial stability of the city," it said in a statement.

Twelve investors, reflecting a balanced spread of financial institutions, were allocated a share of the R1.2 billion bond issue, the City of Cape Town said.

"The fact that the bond was over-subscribed to this extent in the current recessionary climate, reflects well on the City’s financial standing and reputation," said Mike Richardson, chief financial officer for the City of Cape Town.

The rand denominated bond is listed on the Bond Exchange of SA.

Known as the CCT02, it has an issuance volume of R1,2 billion and forms part of a R7 billion Domestic Medium Term Note Programme.

The 15-year bond was issued at 260 basis points over the R186 government bond and within the price guidance given prior to issue, the City of Cape Town said.

Only two municipalities in South Africa - Cape Town and Johannesburg - used a bond issue as a means of borrowing.

"This is because of the complexity and costs of the process, which require large sums to be raised for it to be cost effective.

"However, once the initial costs have been incurred and experience in the process gained, the benefits are greater than traditional methods of borrowing used by municipalities," the City of Cape Town said.

It added that it would use the money raised to fund major infrastructure projects that had been undertaken throughout the city during 2008/09.

"The strategic objective is to ensure that economic growth in the city is not inhibited by a lack of bulk services and infrastructure.

"The focus of capital spending is on water services, solid waste, electricity distribution and roads and the major part of the city’s capital budget is directed to these projects."

Provision would be made for the money raised through the bond issue to be repaid at the end of the loan period, the statement said.

This would be done by creating a sinking fund from revenue flowing from the services to which the money was applied.

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