(Bloomberg) -- The City of Johannesburg is considering raising as much as 2 billion rand ($112 million) of new debt to address a mounting infrastructure backlog.
Newly elected Mayor Dada Morero said the city is exploring options to fund critical projects, mainly to repair water and electricity infrastructure, as it faces financing needs exceeding 44 billion rand. The authorities are in talks with local financial institutions, such as Standard Bank Group Ltd., and international entities including the World Bank and Agence Française de Développement to explore funding options, he said.
“They are part of the consultations we are doing to get a sense of what we can go to the market for,” Morero said in an interview at Bloomberg’s office in Johannesburg on Tuesday. “We can’t go beyond 2 billion rand for now,” he said, citing a National Treasury regulatory framework that limits the amount of debt the city can raise.
Johannesburg has sold seven bonds since 2004, the most recent in 2016, according to data compiled by Bloomberg. The success of those offerings has bolstered confidence in the city’s ability to manage additional debt, Morero said.
“In the past we have issued bonds that were successful and we were able to redeem those bonds without any problem,” he said.
Last month, Moody’s Ratings issued a credit opinion stating that while Johannesburg carries a relatively high level of debt compared with other South African municipalities, it has consistently managed to service its loans due to its large and diversified revenue base. However, this debt has grown in recent years, primarily to fund infrastructure investment.
Moody’s assessed the city’s rating at Ba3, with a stable outlook.
The city’s bonds due in June 2026 were trading at 10.8% as of 11:54 a.m. in Johannesburg. Similarly dated securities for the sovereign were at 8.21%
Johannesburg faces “significant” infrastructure challenges, particularly in water and electricity, which are crucial to maintaining the city’s economic base, Moody’s said. Addressing these needs will require substantial financial resources.
The city needs 221 billion rand to catch up on maintenance and overdue infrastructure upgrades, Bloomberg reported earlier this month.
Beyond debt financing, the authorities are considering other ways of raising money, including ring-fencing a portion of revenue collected for an infrastructure fund that will be used to repair power and water equipment.
“We are looking at how we can do some of these things off the balance sheet by raising money from private funders or anyone in the market who can help us to close that gap,” he said. “Our projections are that we would need between 10 and 15 billion just to neutralize or maintain the water infrastructure.”
Under Morero’s leadership, the city’s strategy will be to leverage public-private partnerships to address its critical infrastructure needs.
“The challenges are huge, but there is appetite to confront them and to find solutions,” he said. “The only way for us to succeed is partnership with national and provincial governments as well as the private sector.”
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