It is expected to create a much needed municipal bond market as the council strives to eradicate capital spending backlogs of R10bn.

The council has called for proposals from financial institutions to be advisers during the process, which will culminate in the bond issue either in the second or third quarter of next year.

Johannesburg city treasurer Jason Ngobeni said yesterday the advisers would advise among other things on the timing of the issue, the strategy, the type and the size of the bond. "Once we get that, we can move fairly quickly. Johannesburg is ready to issue a bond. Our credit-rating agencies say so and the market agrees."

Global credit rating agency Fitch Ratings recently upgraded Johannesburg's long-term rating from BBB+ to A-. The rating indicates high credit quality, with good protection factors.

Ngobeni said the council had been raising money through bank loans, and this resulted in a capital market imperfection due to the absence of municipal bonds. "We are in the process of creating that market. It is a bold step that can only benefit municipalities."

Instead of depending on a few banks for loans, the council would involve more lenders in the market to lend money to the municipality at more favourable interest rates.

This would bring efficiency in the capital market as the council would begin to balance bank loans with bond issues.

Ngobeni said the single obligor limits by banks, where one could not raise another loan when there was another one running, was one of the main problems for municipalities like Johannesburg. "Bringing down the cost of funding is critical, and capital expenditure for us is also critical. If we continue with the current regime, we will not have enough money to fund our backlogs estimated at R10bn for (capital expenditure) and we will also not achieve our vision of becoming an African world-class city."

Regarding an undertaking taken at a workshop in Durban a few years ago, that SA's metropolitan councils should work together in issuing a municipal bond, he said the idea had taken a back seat

"The rationale for a joint bond was raised as a result of the lack of institutional capacity. As Johannesburg we feel we have that capacity, hence we are going alone."

The national treasury was working with the council on this, as the department had been encouraging municipalities to issue bonds to access finance for infrastructure and service delivery backlogs.