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Sep 06, 2007:
Initial public offerings or IPO's are an inexpensive and viable alternative to entering the property market against high barriers of entry into private property investment.
An IPO to be listed on the Johannesburg Stock Exchange (JSE) on the 21st of September, Jozibond, is currently up for tender. However, interested parties must act quickly as the closing offer-date is this Friday, the 7th of September.
In conjunction with Standard Bank, the City of Johannesburg Metropolitan Municipality is bringing Jozibond to the market. Jozibond consists of retail bonds that are subdivided into three maturation categories: two, three and five years. Each period is set as to determine the amount of return on investment (ROI) that is paid out.
As an investment product Jozibond is broken down into two parts. First, when the bonds mature capital outlay will be paid in full. Second, as an income strategy whereby shareholders will receive quarterly returns (interest payments), referenced against a three-month Johannesburg inter-bank agreed rate (JIBAR) plus a margin for the two, three and five maturities of 5,25 and 40 basis points respectively.
JIBAR is the rate at which banks buy and sell short-term money, and it fluctuates daily. "Rates are dependent on these market forces," Michelle Mbolekwa of Jozibond says.
Consequently returns are not based on compounded interest but floating rates which means that no guaranteed, seamless return-figure is granted to the shareholder. Final interest rates will be determined on the 21st September, when the bonds are officially listed on the JSE.
As an indication of potential return, interest rates for the three different maturities as of the 27 August are as follows: two-year maturity stands at 10,167%, three-year at 10,367%, and the five-year at 10,517%. "The longer the maturity of the bond, the greater the return," Mbolekwa says.
Mbolekwa says Jozibond should be perceived as a savings device that offers a "safe investment, at better interest-rates".
Jozibond is the first public offering of its kind, for a number of reasons: First, Jozibond can be entered into with as little as R1k and up, in continual increments of R1k. Second, it is the first retail bond offered-up by a municipality.
In this regard, Andrew Costa of Standard Bank's debt origination, corporate and investment banking division, says "in order to offer bonds in denominations of less than R1m each and for maturities of less than five years, the City of Johannesburg was obliged to list the bonds. Market research indicates that individual investors are very interested in maturities of less than five years".
Costa expects annual returns to exceed 10% in the five year period, which he feels is exceptionally attractive.
The City of Johannesburg hopes to instill a sense of social pride and responsibility in citizens investing directly in their city and promoting better saving habits from the City's residents and enhancing service delivery.
Interested investors, if residing in the Greater Gauteng area, can apply at a local post office, no charges or brokerage fees are incurred in the primary offering, as well as any Uncertified Securities Tax. Alternatively, you can go through your own broker or via Standard Bank's online share trading application. You must have a certified copy of your identity document, proof of residence not older than three months, a tax certificate and a bank statement.
It should be noted that selling Jozibond shares prior to the specified maturation dates, will result in a penalty of at least 1,5%. Some may question the financial viability and assurance of the Municipal's returns to shareholders, however as is the case with most investment products, "risk is your only certainty".
Final reminders were sent out this morning by Standard Bank Online. - James Monteiro
