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Investor Roadshows – CoJ03 April 2005 Contents Parties to the transaction Update on CoJ Organisational and sector update Financial profile Summary of the offering Investor relations Price guidance Timetable Parties to the transaction City of Parks Tau Sibongile Mazibuko Mankodi Moitse Johannesburg MMC: Finance & Economic Acting City Manager Acting Executive Director: Development Finance & Economic Development 011 407 7581 (011) 358 3661 firstname.lastname@example.org 011 358 3141 email@example.com Mankodi@joburg.org.za City of Jason Ngobeni William Mathamela Johannesburg Treasurer Head of Dealing 011 242 1043 011 242 1042 firstname.lastname@example.org email@example.com Lead Managers ACMB: Barclays: Vunani Capital Riaan Kemp / Rob Moody Haydn Hammond / Quinton Chris Gerber Zunga 011 350 8391 011 263 9523 011 772 7224 Organisational and sector update Joburg 2030 Strategy The Joburg 2030 strategy was set after the December 2000 local elections The main aim was to ensure economic development and a better quality life Implementation has incorporated a number of flagship projects including: Safety and security; Skills; Economic development; Sectoral development; SMME development; and Investment and trade facilitation CoJ believes the implementation of this strategy is on track and would like to complement it with sound financing Revenue management The Establishment of the Revenue Shared Services Centre (RSSC) is making good progress CoJ in 2003 established a Credit Control and Debt Collection Policy to ensure all billing arrears are collected efficiently and promptly An in house legal team has been established to handle outstanding claims in conjunction with a panel of external attorneys and debt collectors The debtors write-offs policy is to write-off where: All legal recourses to recover debt have been exhausted; or The debt has become too expensive/uneconomical to recover CoJ will be reviewing third party proposals on the sale of the debtors book in the next financial year As all bad debts have been provided-for the impact of this sale would be positive on the financial position of the CoJ Revenue management - continued A number of new revenue projects have been implemented in the last year Query resolution Clearances Refunds Credit control Collection rate continuing to improve Regional Electricity Distributors The establishment of Regional Electricity Distributors (‘REDs’) has begun with Cape Town (RED1), as a pilot CoJ’s electricity utility will form part of RED4 The RED’s are expected to increase efficiencies in the whole electricity distribution industry Municipalities will be appropriately compensated This compensation broadly could take the form of : Cash payments; or Interest on loans; or Dividends; or A combination CoJ is closely participating in the process RSC levies The Minister of Finance has indicated that RSC levies will be phased out and replaced CoJ has made representations that the intended replacement should have the same economic growth linkages as the RSC levies We believe our view is being considered but at this stage we have not been informed of the replacement Reducing water losses Major water losses are incurred through physical and commercial losses in metered and non-metered areas Un-accounted for Water (‘UFW’) which in the 2004-5 period represented 34% of bulk purchases was down from 36% for the preceding financial year We expect it to go down to 31% in 2005/2006 with further investment into infrastructure ‘Operation Gcin’amanzi’ which is designed to address water supply, demand, conservation, wastage, ownership of consumption and non-payment of water services in Soweto and other parts of the City has been piloted in Phiri The results are positive and a larger roll-out is expected Reducing power outages Reducing power outages will have a direct incremental effect to revenues However the transmission network in many areas is in a very poor state of repair and recent audits have identified transformers that require refurbishment Current reports highlight the need to spend at least ZAR 125m per annum on the refurbishment and extension of the transmission networks Progress has been made in the previous 2 years and COJ plans to spend ZAR128m on power systems in the 2005/2006 financial year CoJ is committed to spending the required amount to rectify this issue Financial update Financial reporting and audit opinion CoJ consolidated its financial statements for the first time in 2003/4 This has set the platform for international reporting standards In addition to this CoJ is determined to get a clean audit opinion The audit opinion mainly focused on: Building a strong financial control environment Creating a comprehensive asset register Confirming completeness of revenue CoJ is implementing operation Clean Audit Opinion and substantial progress has been made to date Feb '05 Jan '05 Dec '04 Nov '04 Oct '04 Sep '04 Aug '04 Jul '04 Jun '04 Collection Rates: 12 month moving average May '04 Apr '04 Mar '04 Feb '04 Jan '04 Dec '03 Nov '03 Oct '03 Sept '03 Aug '03 Jul '03 Jun '03 May '03 Apr '03 above 90% Mar '03 Feb '03 Jan '03 110.0 105.0 100.0 95.0 90.0 85.0 80.0 75.0 70.0 Liquidity position: The basis for the short term rating upgrade ZAR Million 1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 Feb-04 M ar -04 A pr -04 M ay-04 Jun-04 Jul -04 A ug-04 Sep-04 Oct -04 Nov-04 Dec -04 Jan-05 Forecasted Capex needs CoJ's historic and forecasted Capex: 2400 2000 2,100 2,100 2,000 1600 1,502 1,346 1200 1,280 1,105 949 800 592 632 400 309 295 0 1995/6 1996/7 1997/8 1998/9 1999/0 2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 Credit rating CoJ's current and historic credit ratings are as follows: 1999: 1999: Fitch BBB+ Fitch BBB+ F2+ F2+ 2003: 2003: Fitch Fitch A- A- F2+ F2+ 2003 2003 CA Ratings A CA Ratings A A2+ A2+ 2004 (re-affirmed): 2004 (re-affirmed): Fitch Fitch A- A- F2+ F2+ 2004 (re-affirmed) 2004 (re-affirmed) CA Ratings A CA Ratings A A2+ A2+ 2005 (re-affirmed & upgrade) 2005 (re-affirmed & upgrade) CA Ratings A CA Ratings A A1 A1 Summary of the offering Summary of the offering Issuer: City of Johannesburg Metropolitan Municipality Issue size: ZAR 700 million Maturity: 8 years Interest payments: Semi-annual interest payments Redemption: 2013 Status of the bond: Unsecured and unsubordinated bonds Type of placement: Public Listing: Bond Exchange of South Africa Yield: R157 + credit spread Coupon: TBA Summary of the offering (continued) Issuer: City of Johannesburg Metropolitan Municipality Allotment Book build (Strict Dutch auction) Documentation: -Programme memorandum -Pricing supplement -Rating Report Secondary market Market facilitation on a best endeavors basis support: Use of proceeds: -City Power -Johannesburg Water -Johannesburg Road Agency -Johannesburg Development Agency Investor relations Ongoing disclosures After the close and listing of the issue, CoJ will maintain on-going disclosures to investors, including: Annual results presentations Circulation of credit rating updates Timely disclosure of any material changes to the City’s financial position, management or operations CoJ bond-holders relationship contacts William Mathamela Head of Dealing: Treasury Tel: 011 242 1040 Fax 011 242 1055 Email: firstname.lastname@example.org Price guidance Assumptions Base pricing on the following data: COJ01 credit spread Investec Bank yield curve as longer dated bond as well as close to similar credit rating INCA yield curve as longer dated bond as well as similar business risk Apply Moody EDF ratios for the differential Price vs possible comparables Investec Bank 2008 2009 2010 2011 2012 2013 2014 2015 IV02 (A+) 2008 Sub Debt R194 135 IV01 (A+) 2012 Sub Debt R153 173 Investec Curve 141 146 152 157 163 169 174 COJ03 (A-) on Investec Curve -8 144 149 155 160 166 COJ03 (A-) on Investec Curve and net EDF application on differential -8 38 11 -11 - 144 196 174 158 174 INCA IN03 (AA-) 2011 R153 80 IN04 (AA-) 2015 R157 105 INCA Curve 72 72 80 89 97 105 COJ03 (A-) on INCA Curve 66 138 147 155 163 171 COJ03 (A-) on INCA Curve and net EDF application on differential 85 131 158 182 192 157 211 246 278 297 Average of COJ03 (A-) on Investec and INCA Curve 150 204 210 218 235 Assumptions and considerations: Accepts true market pricing (Risk vs. Reward) Issue size not taken into account Market demand and supply not considered * All rates as at 31 March 2005 Price Guidance Use Average as Base Case (Credit Spread equals 210 basis Points) High current demand and Low Supply might push credit spreads lower Initial issue size for COJ03 will be relatively small and might also lower the expected credit spreads THEREFORE, RECOMMENDED PRICE GUIDANCE RANGE FOR CREDIT SPREAD 175 TO 210 BASIS POINTS Recommendation COJ03 will be an eight year maturity, with a credit spread linked to the R157 with a ten year maturity R157 trading at 8.61% Eight year Government yield curve at approximately 8.45% A credit spread of between 175 to 210 basis points equates to between 160 and 195 basis points above the R157 THEREFORE, RECOMMENDED PRICE GUIDANCE ABOVE THE R157 SHOULD BE 170 TO 200 BASIS POINTS, TO INCLUDE A SLIGHT NEW ISSUANCE PREMIUM * All rates as at 31 March 2005 Timetable Issue timetable 7 April 2005 Preliminary DMTN programme memorandum 21 April (at 9am) Book opens 21 April (at 12pm) Book closes 21 April (at 2pm) Council meeting 21 April [T] Allocation 21 April Benchmarking to R157 26 April [T+3] Settlement and Issue 26 April Listing on BESA Book-building and allocation The bookbuild will be conducted by Barclays on 21 April from 9am to 12pm Bookbuilding and allocation process: Price guidance up to the day of the issue Strict Dutch auction on the day of the issue Council meeting at 2pm on 21 April Subscription/Allocation methodology subscription ZAR 1 million Book-building hotline Haydn Hammond Alan Woodcock Barclays Barclays Tel: 011 772 7224 Tel: 011 772 7220 Email: email@example.com Email: alan.woodcock @barcap.com Important notice This presentation has been prepared by the City of Johannesburg Metropolitan Municipality (“COJ”). This publication is provided to you fo information purposes. Neither the advisors to COJ nor any their officers or employees thereof accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. Any securities recommendations made herein may not be suitable for all investors Any modelling or backtesting data contained in this document is not intended to be a statement as to future performance. The information contained in this document is not intended to constitute legal, accounting or tax advice. Therefore, no responsibility will be accepted by the advisors for the treatment by any court of law, tax or other authorities with regard to the outcome of any transaction resulting from the use of this document, and investors should seek their own advice as to the suitability of any investments described herein for their own financial or tax circumstances. This communication is being made available in the Republic of South Africa to persons who have professional experience in, and whom COJ believes to be sufficiently knowledgeable to understand, matters relating to investments. The investments to which this relates will be entered into only with such persons. Copyright in this report is owned by COJ. No part of this report may be reproduced in any manner without the prior written permission o COJ.
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