Green bonds key to help fund SA’s huge infrastructure programme
The public works ministry and the infrastructure investment office in the presidency have started talks with investors and the JSE
SA plans to tap global appetite for green bonds to help fund an infrastructure programme worth as much as R2.3-trillion over the next decade.
Winning over the private sector and streamlining the project-approval process will be key to the drive, launched by President Cyril Ramaphosa in June, to revive an economy that was already in recession before the coronavirus struck, and is expected to contract by the most in nine decades in 2020. In July, 62 priority projects were announced in the first stage of the programme.
“There is a shortage of R140bn in phase 1, and a large part of that will come from green bonds,” said public works minister Patricia de Lille. Her department is overseeing the programme. “We can’t just be a government of announcements and sod turnings.”
SA faces backlogs in everything from power plants to broadband services and housing. While the government has traditionally funded most infrastructure, its coffers are empty, and it’s looking to tap the about R12-trillion that the country’s business organisations estimate is the total of savings and bank assets as well as foreign sources of capital.
“It’s not that the private sector doesn’t want to invest in infrastructure projects,” said Leon Campher, the CEO of the Association for Savings and Investment SA, an industry body of fund managers and insurers that’s working with government. “The problem generally with infrastructure has been that it has been scattered all over the place. Local authorities want projects, provincial authorities want projects, government departments want projects and there’s no co-ordination.”
Those departments don’t have the skills to properly assess projects and raise funding for them, he said, adding that the creation of a national infrastructure office may change that.
The public works ministry and the infrastructure investment office in the presidency have started talks with investors and the JSE, and plans to launch its green-bond programme before the end of 2020, De Lille said.
Appetite for so-called ESG bonds — notes that meet environmental, social and governance criteria — is rising worldwide. Mexico sold €750m worth of sustainable bonds in September while Saudi Arabia’s power utility issued $1.3bn of green bonds. Emerging-market governments and companies have sold a record $10bn of green, social and sustainable bonds in 2020.
While only R9.3bn of green bonds have been listed on the JSE, the exchange could handle larger volumes, said Shameela Ebrahim, the bourse’s chief sustainability officer. The JSE has 1,800 bonds issued on its platform with a market capitalisation of more than R3-trillion.
Eligible projects could range from renewable energy to green public transport and water management, De Lille said.
Announcements on the timelines of some of the priority projects should begin in October, De Lille said. The process has been accelerated by bringing the project approvals under one roof, the central office of Infrastructure SA, and conducting licence applications and environmental impacts assessments at the same time, she said. A R100bn infrastructure fund, that will partner with private investors in so-called blended finance projects, has been set up.
“We have a team at Infrastructure SA looking at the concept of listed project bonds and/or green bonds where you are funding renewables, so that you can crowd in more pots of capital,” Campher said. “That would be an attractive vehicle into a project for a provident fund that puts quite a premium on liquidity.”
The government has also asked private companies to second professionals to the infrastructure department in a bid to get the projects up and running.
“It’s the first time in the history of SA to have one department for infrastructure,” De Lille said. “We have created a single entry point for all infrastructure.”
In addition to a lack of skills, the poor state of SA’s finances and those of its state companies such as Eskom is an obstacle, according to Vuyo Ntoi, co-MD of Old Mutual Plc’s African Infrastructure Investment Managers.
“With technically bankrupt state-owned enterprises as the counter parties you need some sort of guarantee,” he said in an interview. “The challenge around government and the Eskom balance sheet needs to be resolved.”
Dario Musso, co-head of infrastructure finance at FirstRand’s Rand Merchant Bank, said plans put in place by the government were making good progress and that the state had shown a greater willingness to work with the private sector.
“We are seeing great momentum, more than we have seen in the last decade,” he said. “But it’s not an overnight thing. It is a very long-term, staggered play to get these projects to market and get them delivered in a bankable way.”
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.