CASE STUDY: Cape Town Wins Race to Issue Africa’s First Municipal Green Bond

The City of Cape Town successfully placed ZAR1bn in new green bonds this Summer to fund a raft of sustainability initiatives in the city, proving once again that cities are a natural fit for sustainable finance instruments.

Nov 1, 2017 // 3:01PM


The City of Cape Town sought to raise fresh funding from the local market to finance a raft of new projects being undertaken by the city. These projects include: procurement of electric buses; energy efficiency in buildings; water management initiatives (which includes water meter installations and replacements, water pressure management and upgrade of reservoirs); sewerage effluent treatment; and the rehabilitation and protection of coastal structures.

The fundraising effort, in line with the City’s Organisational Development and Transformation Plan's governance principles to enhance resilience and sustainability and improve resource efficiency, saw the City successfully raise ZAR1bn through its inaugural green bond transaction to match anticipated project expenditure.

Transaction Breakdown

After a successful local market roadshow, the City of Cape Town alongside Rand Merchant Bank released price guidance for a ZAR1bn 10-year transaction to be sold through a Dutch Auction on the Johannesburg Stock Exchange on 12 July.

Initial guidance released to the market was 140-160bp over comparable local-currency government bonds (R186).

As this was the City’s inaugural green bond, investors who participated with the roadshow focused their questions on its credit rating, giving it an opportunity to allay any concerns, given some of the volatility seen in the market during the Spring, as well as the water and electricity supply outlook in Cape Town. The majority of the funds will go towards water-related projects.

The bond was accredited by Climate Bonds Initiative as compliant with its core use of proceeds criteria. This also aligned with the City’s Climate Change Strategy and Council-approved policy. Moody’s also awarded the bond a GB 1 rating, the highest rating achievable for a green bond.

The auction went live at 9AM, and within two hours the bond generated ZAR4.2bn in demand from 31 accounts. Only eight of the initial 31 bids were successful and received allocations, with priority mostly given to large bidders, and price tightening to R186+133bp, 7bp inside the initial guidance floor. Large bids were received from a few investors, including banks. Two banks received allocations comprising 45% of the book with the remainder being allocated to asset managers. It was listed on the JSE on 17 July 2017.

The green bond was issued as part of the City’s ZAR7bn MTN programme, in addition to the ZAR2.4bn in conventional bonds previously issued under the same programme, and marked an important return to the local capital markets – from which it had been absent for a few years. It is the City’s first foray into the asset class, and could pave the way for other cities to follow suit.

Africa Deals Sustainable Finance CEEMEA

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