JOHANNESBURG - South Africa's government has set the terms for next week's debut infrastructure bond sale, which it hopes will raise at least 15 billion rand ($877.70 million) for projects in sectors like water, health and rail, a term sheet showed.

The bond auction on December 8 is part of a broader budget plan to allocate over 1 trillion rand to public infrastructure over the next three years and lift the potential growth rate of Africa's biggest economy.

The term sheet seen by Reuters showed the two-tranche infrastructure and development finance bond issuance includes a 10.3-year note maturing in March 2036, with pricing guidance around 8.753%, and a 15.3-year note maturing in March 2041, with guidance around 9.275%.

Funds raised will flow into the National Revenue Fund before the government allocates them to projects like the redevelopment of the Tygerberg Hospital in Cape Town, a major water pipeline in Limpopo province and upgrades to state freight rail company Transnet's coal and iron ore export lines.

Samir Gadio, head of Africa strategy at Standard Chartered, said infrastructure bonds were becoming increasingly popular tools for African governments to raise money, with Kenya having already sold such notes and Uganda considering an issue.

In Nigeria, the authorities have looked at ways to tap pension fund assets for the financing of infrastructure projects, but there has been no infrastructure bond issuance (in South Africa) to date, Gadio said.

The bonds may appeal to investors looking to diversify their portfolios, especially if they have infrastructure or sustainability requirements as part of their mandate. But they could be less liquid than regular South African government bonds, he added.

 

($1 = 17.0901 rand)