Tshwane still keen on bond market, after cancelled auction
The City of Tshwane still intends taking its bond notes to the market, even though its first auction in five years had to be cancelled last week after it failed to adhere to requirements.
Tshwane’s foray into the market was intended to raise a 10-year bond of R1bn at a pricing of 180 basis points more than the benchmark R186 government bond. It received offers amounting to R2.1bn from 11 bidders. The city wanted to raise the debt to finance capital expenditure for the 2017-18 financial year.
However, the bonds, priced at 10.725% a year, could not be issued after the auditor-general would not issue a "letter of comfort" to finalise the auction. The letter provides a level of assurance that an obligation would ultimately be met.
Tshwane finance mayoral committee member Mare-Lise Fourie said on Thursday that the city had analysed its internal administrative processes and found there were shortcomings.
The city was working to rectify its processes to avoid similar incidents in future, she said.
The bonds could not be reissued, she said, because they specifically pertained to financing capital expenditure projects for 2017-18. She did say though that if Tshwane went to the market again, it would again be to finance capital expenditure.
Tshwane was now considering its options, she said, and would return to the bond market if it found that doing so would be to its financial benefit. The bond was oversubscribed by more than 100%.
Fourie said this positive reception was boosted by Moody’s review of the city’s long-term rating outlook from "negative" to "stable".
Africa Boso, the spokesman for the auditor-general, told Business Day that the scope of the bond-issue engagement involved performing work in terms of the requirements of the international standards on related services and the international standards on assurance engagements.
"The auditor-general … was not in a position to issue the required reports, as the time frame for the engagement did not allow for the detailed work required. The auditor-general did not withhold the letter due to any substantive reason," said Boso.