Rand 1bn ($53 million equivalent) 12 year bond issue by the City of Johannesburg
Partial credit guarantee for 40 percent of principal shared equally by IFC and the Development Bank of Southern Africa (DBSA).
Achieved a national scale rating of AA-, three rating levels above the city of Johannesburg’s stand-alone rating at that time.
About the City:
Johannesburg, with a population of 3.2 million, is South Africa’s main business center and contributes more than 16 percent of the national gross domestic product. The City of Johannesburg provides a full range of municipal services, from power distribution to waste management. Its revenues come mainly from property and business taxes and from utility tariffs.
The City of Johannesburg’s objectives were threefold: extend the maturity of its debt to match better the life of its infrastructure assets; refinance existing high-cost bank debt; and diversify its funding sources. It used a partial credit guarantee to raise its credit rating, extend the maturity of the bond, and tap the institutional investor market.
The structure of the project :
The rand 1 bn bond matures in 2016 and amortizes over the last three years. IFC and DBSA provided a partial credit guarantee sized at 40 percent of the principal outstanding. The guarantee can be used to repay up to the full amount of principal and interest falling due and payable to bondholders on any given payment date, subject to guarantee limits, and may also be called upon if the bonds have been accelerated.
The outcome :
The enhanced bonds were rated AA-.zaf by FitchRatings. The issue was oversubscribed 2.3 times, reflecting a strong endorsement by the market and allowing for spread tightening 71 points below the pricing achieved for the City of Johannesburg’s inaugural six-year bond (rated A-.zaf) issued in April 2004 without enhancement.