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The Johannesburg Stock Exchange (JSE) has announced that it will begin listing “project bonds”. These bonds will be available from mid-March, and will allow institutional investors to invest in infrastructure projects.

JSE spokesperson Pheliswa Mayekiso says that details of the listing would be made public closer to the launch, but that the bonds will provide private firms a chance to get a foothold in infrastructure projects in South Africa. Project financing in this sector has traditionally come from banks and government, so these bonds will open up opportunities for all stakeholders. These project bonds are also expected to provide a new asset class for retirement funds.

Johannesburg Stock Exchange bonds
Project bonds are not new in South Africa. April 2013 saw the first listing and investment-grade rated infrastructure project bond, held entirely by institutional investors. The bond was listed on the Johannesburg Stock Exchange in June 2013. Professional services firm Deloitte & Touche, in association with Trident Capital, were the lead transaction advisors with Standard Bank acting as lead arranger, book runner and debt sponsor. The bond was issued by CPV Power Plant No.1 Bond SPV (RF) Ltd, a Soitec Solar GmbH affiliate. The proceeds were used to finance the construction of a 44 MWp Concentrated Photo Voltaic Plant.

Project bonds have been successfully employed in Europe and America to fund infrastructure projects, and Kenya and Nigeria have also seen successful use of project bonds for infrastructure development. Recent surveys suggest that infrastructure is beginning to be viewed as an asset class of its own and the allocation to this investment class is expected to increase significantly, according to analysts.

However, the use of project bonds as a funding mechanism may be unattractive to investors with a lower appetite for risk, which is inherently higher in the construction industry. According to Deloitte, local institutional bond investors, while happy to take on performance risk, generally are not prepared to take on any form of construction risk. “Not all debt portions of these deals will be able to take advantage of this source of funding, but this mechanism will certainly provide benefits to the project developers in the form of potentially enhanced returns due to the lower cost of capital,” the analysts state.

Image credit: Copyright: alexmit / 123RF Stock Photo

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