THE City of Johannesburg is to go to the bond market to raise a further R1bn little more than two months after it successfully placed its first R1bn bond with investors.

The new bond issue will, however, be of longer term as it has a maturity of 12 years against the first bond's six years. It will also have a higher rating because it is partially guaranteed by the International Finance Corporation and the Development Bank of SA.

International rating agency Fitch yesterday assigned a double A minus rating to the new bond three notches above Johannesburg's own A minus rating, the same rating assigned to the previous bond .

Fitch said its rating was based on the city's credit quality and the 40% partial guarantee offered by the finance corporation and the Bank , which could provide liquidity and reduce the probability of default.

Fitch said that the new bond's rating was notched higher than the city's, primarily because the guarantee could reduce the severity of the loss in case of default.

City of Johannesburg executive director of finance Roland Hunter confirmed yesterday that city officials were on a road show this week to market the new bond.

However, the council had still to ratify the final terms and conditions of the bond at its June 25 meeting , following a book build during which the bond will be priced.

Hunter said the city had much capital spending to do in its new financial year, and needed to restructure its debt further hence the decision to go back to the market so soon. The guarantee enables the issue of much longer dated paper.

Government is keen to see the development of a municipal bond market in SA and the City of Johannesburg's initial bond was SA's first such issue, after new legislation last year made it possible.

The first Johannesburg bond issue was 1,5 times oversubscribed and priced at a spread of 230 basis points above the benchmark government bond. Although that was seen by some in the market as a little expensive, the city had to pay a bit of a premium because it was a first time issuer and was inaugurating the municipal bond market.

For Johannesburg , the money raised by the initial bond was significantly cheaper than the cost of the debt it already had on its books, saving more than R20m a year on interest costs.

Average cost of borrowing was about 14% and the coupon on the first bond was 11,95%.

Hunter said the bond issues enabled the city to match its debt more closely with the life of its assets. The new bond, which is due to mature in 2016, was a closer match, although there was still along way to go to reach the 30-year average life of the city's assets.

The bond issues will also position the city for higher capital spending going forward.

Hunter said the city could return to the bond market again to fund annual capital needs.

Johannesburg's population is growing by 4% a year and it needs about R2bn capital spending a year for at least the next decade to address backlogs and promote growth.