South Africa Mulls Infrastructure Bonds in Debt-Market Expansion

South Africa is considering infrastructure bonds as it seeks to expand the municipal debt market and increase investment in services such as housing and sanitation.

An increase in other municipal debt issuance is also on the cards as the government tries to revive investment in municipal infrastructure, the National Treasury said in its mid-term budget released in Cape Town today. The state-owned Development Bank of Southern Africa is examining financing options that may also include project finance and underwriting debt, it said.

“These initiatives will aim to improve liquidity and extend maturities in the municipal-bond market and to encourage, rather than crowd out, private investment,” the Treasury said. “South Africa’s large municipalities require massive investment to stimulate growth, maintain infrastructure and ensure that basic services are provided.”

Bond sales by South African municipalities are set to triple this year to about 3 billion rand ($272 million) as cities tap debt markets to fund development, according to Standard Bank Group Ltd. Johannesburg, the nation’s biggest city, sold 1.5 billion rand of debt this year and plans to raise another 7.5 billion rand over the next three years, it said in April.

Infrastructure bonds raise money for specific projects, and are repaid using revenue from those projects.

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