Money to be used to fund roads, water, sanitation projects
Mangaung Metropolitan Municipality is planning to raise R5 billion on the bond market which will be used to finance several capital infrastructure projects which the local authority has prioritised for its domestic medium term note (DMTN) programme.
The prioritised capital projects are expected to be implemented between the 2016/17 to 2020/21 financial years.
The primary goal of the bond market – which is also known as the debt or credit market – is to provide long-term funding for public and private expenditures.
Although executive mayor Thabo Manyoni would not specify the exact projects in his response to written questions submitted by The Weekly, since the proposed projects were yet to be approved by council, he indicated that the projects were expected to improve people’s lives and broaden the municipality’s revenue generating base.
However when he presented his pre-budget speech in May, Manyoni said Mangaung residents in all the 44 wards had told the municipality during a series of public participation hearings earlier this year that they urgently wanted roads to be upgraded and storm-water drains fixed as most of them were blocked.
At least 32 wards wanted improved water and sanitation services while 31 wards requested more health and emergency facilities as well as the rehabilitation of parks and cemeteries, the building of Schools and waste removal services.
This week the mayor said the municipality had decided to turn to the bond market for increased funding in order to implement the capital infrastructure projects faster.
“The opportunity has arisen for the Metro to diversify its funding sources by accessing the South African bond market,” said Manyoni.
“Bonds issuance provides an alternative funding mechanism for Mangaung… Consideration of alternative funding sources enables the City to ensure sufficient and cost-effective financing mechanisms in order to achieve its long term objectives,” added the mayor.
Outlining some of the benefits of going to the bond market to seek funding, Manyoni said the method increased the municipality’s pool of potential lenders both locally and internationally and that it also raises its profile in financial markets and other arenas.
Bonds also lowered loan interest rate spreads and allowed the municipality to dictate terms and conditions for the financial instruments. The system also forces financial management discipline and encourages transparency in dealing with external parties, among others.
Manyoni said the municipality was confident that it would raise the proposed amount because it had received improved audit opinions in recent years, a development expected to instil confidence in potential funders.
“The municipality received an unqualified audit opinion for the 2013/14 financial year… (international ratings agency) Moody’s released a credit opinion on April 14 2015 confirming an investment grade of A3.za (long-term rating) and P-2.za (short-term rating).
“The issuer rating reflects the Mangaung’s strong operating balance and improving cash flows supported by low debt levels relative to other rated Metros.
“The stable outlook also reflects expectations that the Metro will continue to post solid and a consistently sound liquidity position despite increased capital infrastructure investment that will translate into a moderate increase in debt levels,” the mayor explained.
He said their financial advisors had already assessed the market and established positive outlook and appetite by investors.