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Sakhisizwe Municipality – Municipal Loans Policy

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SAKHISIZWE MUNICIPALITY

MUNICIPAL LOANS POLICY

(1) Purpose of policy

(a) The purpose of this policy is to determine the conditions applying to the raising of both short and long term loans by the municipality.

(b) In applying this policy, the municipality must take cognizance of and adhere to the provisions of Section 230A of the Constitution which provides that a municipal council may, in accordance with national legislation -

(i) raise loans for capital or current expenditure for a municipality, subject however, to loans for current expenditure only being raised when necessary for bridging purposes during a fiscal year; and

(ii) bind itself and a future council, in the exercise of its legislative and executive authority, to secure loans or investments for a municipality.

(2) Definitions

In this policy -

“Act” means the Local Government: Municipal Finance Management, 2003 (Act No. 56 of 2003);

“accounting officer” means the municipal manager acting in the capacity of accounting officer of the municipality;

“allocation”, means -

(a) the municipality’s share of the local government’s equitable share referred to in section 214 (1) (a) of the Constitution;

(b) an allocation of money to the municipality in terms of section 214 (1) (c) of the Constitution;

(c) an allocation of money to the municipality in terms of a provincial budget; or

(d) an allocation of money to the municipality by an organ of state, including another municipality, otherwise than in compliance with a commercial or other business transaction;

“basic municipal services” means a municipal service that is necessary to ensure an acceptable and reasonable quality of life and, if not provided, would endanger public health or safety or the environment;


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“Council” means the Council of Sakhisizwe Municipality referred to in section 18 of the Municipal Structures Act, 1998 (Act No. 117 of 1998);

“debt disclosure regulations” means the Municipal Regulations on Debt Disclosure contained in Government Notice R492 of 15 June 2007 herein referred to as the “regulations”;

"disclosure statement" means a statement issued or to be issued by the municipality when it intends to incur debt by issuing municipal debt instruments or by a person who intends to incur debt by issuing securities backed by municipal debt.

“financing agreement” includes any loan agreement, lease, installment purchase contract or hire purchase arrangement under which the municipality undertakes to repay a long-term debt over a period of time.

“financing costs” include:

(a) capitalised interest for a reasonable initial period;

(b) costs associated with security arrangements in accordance with paragraph 8 of this policy;

(c) discounts and fees in connection with the relevant financing;

(d) fees for legal, financial advisory, trustee, credit rating and other services directly connected to the financing; and

(e) costs connected to the sale or placement of debt, and costs for printing and publication directly connected to the financing;

(f) costs of professional services directly related to the capital expenditure funded in terms of this policy; and

(g) such other costs as may be prescribed.

“lender” means a person who provides debt finance to the municipality;

“long-term debt” means debt repayable over a period exceeding one year;

“prescribed” means prescribed by or in terms of the Act;

“Mayor” means the Mayor of the municipality as defined in the Act;

“municipal debt instrument” means any note, bond, debenture or other evidence of indebtedness issued by the municipality, including dematerialised or electronic evidence of indebtedness intended to be used in trade;


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"municipal debt disclosure depository" means a physical or electronic depository administered by the National Treasury.

“security” means any mechanism intended to secure the interest of a lender or investor and includes any of the mechanisms referred to in this policy;

“short-term debt” means debt repayable over a period not exceeding one year.

(3) Short-term debt

(a) The municipality may incur short-term debt only when necessary to bridge -

(i) shortfalls within a financial year during which the debt is incurred, in expectation of specific and realistic anticipated income to be received within that financial year; or

(ii) capital needs within a financial year, to be repaid from specific funds to be received from enforceable allocations or long-term debt commitments.

(b) The municipality may incur short-term debt only if -

(i) a resolution of the Council, signed by the Mayor, has approved the debt agreement; and

(ii) the accounting officer has signed the agreement or other document which creates or acknowledges the relevant debt.

(c) The Council may -

(i) approve a short term debt transaction individually; or

(ii) approve an agreement with a lender for a short term credit facility to be accessed as and when required, including a line of credit or bank overdraft facility.

(d) A resolution approving the terms of an agreement contemplated in subparagraph (c) must specify the credit limit.

(e) A resolution must be passed by the Council whenever the agreement contemplated in subparagraph (c) is changed.

(f) If the Council approves a credit facility that is limited to emergency use, the accounting officer must notify it in writing as soon as practical but, in any event not later than the next ordinary meeting of the Council, of the amount, duration and cost of any debt incurred in terms of such a credit facility as well as options for repaying such debt.


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(g) The municipality -

(i) must pay off short-term debt within the financial year in which it is incurred; and

(ii) may not renew or refinance short-term debt where such renewal or refinancing will have the effect of extending the short term debt into a new financial year.

(4) Responsibilities of lender

(a) Subject to subparagraph (c), no lender may wilfully extend credit to the municipality for the purpose of renewing or refinancing short-term debt that must be paid off in the financial year in which it is incurred.

(b) If a lender wilfully extends credit to the municipality in contravention of subparagraph (a), the municipality is not bound to repay the loan or interest on such loan.

(c) Subparagraph (b) does not apply if the lender -

(i) relied in good faith on the written representations of the municipality as to the purpose of the borrowing; and

(ii) did not know and had no reason to believe that the borrowing was for the purpose of renewing or refinancing short-term debt concerned.

(5) Long-term debt

(a) Subject to subparagraph (b), the municipality may incur long-term debt only for the purpose of -

(i) capital expenditure on property, plant or equipment to be used for the purpose of achieving the objects of local government as set out in section 152 of the Constitution; or

(ii) re-financing existing long-term debt.

(b) The long-term debt contemplated in subparagraph (a) may be incurred only if -

(i) such existing long-term debt was lawfully incurred;

(ii) the re-financing does not extend the term of the debt beyond the useful life of the property, plant or equipment for which the money comprising the debt was originally borrowed;


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(iii) the net present value of projected future payments (including principal and interest payments) after re-financing is less than the net present value of projected future payments before re-financing;

(iv) the discount rate used in projecting the net present value referred to in subparagraph (iii) and any assumptions in connection with the calculations, are reasonable and in accordance with criteria set out in any prescribed framework.

(v) the Council has, by resolution, approved the debt arrangement and the resolution has been signed by the Mayor;

(vi) the accounting officer has signed the agreement or other document that creates or acknowledges the debt;

(vii) the proposed long-term debt is consistent with the municipality’s capital budget; and

(viii) the accounting officer has complied with the requirements of section 21A of the Municipal Systems Act, 2000.

(c) The long-term debt contemplated in subparagraph (a) may be incurred only if the accounting officer, in accordance with the provisions of section 21A of the Municipal Systems Act, 2000, has -

(i) at least 14 days prior to the meeting of the Council at which approval for the debt is to be considered, made public an information statement setting out particulars of the proposed debt, including the amount of the proposed debt, the purposes for which the debt is to be incurred and particulars of any security to be provided;

(ii) invited the public to submit written comments or representations to the Council in respect of the proposed debt;

(iii) has submitted a copy of the information statement referred to in subparagraph (c) (i) to the Council at least 14 days prior to the meeting at which the resolution referred to in this subparagraph is to be adopted, together with particulars of -

(aa) the essential repayment terms, including the anticipated debt repayment schedule; and

(bb) the anticipated total cost in connection with such debt over the repayment period.


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(6) Conditions applying to both short and long-term debt

The municipality may incur debt only if -

(a) the debt is denominated in Rand and is not indexed to, or affected by fluctuations in the value the Rand against any foreign currency; and

(b) paragraph 8 of this policy has been complied with if security is to be provided by the municipality.

(7) Security

(a) The municipality may, by resolution of the Council subject to subparagraphs (c), (d) and (e), provide security -

(i) in respect of any of its debt obligations;

(ii) in respect of its contractual obligations undertaken in connection with capital expenditure by other persons on property, plant or equipment to be used by the municipality or such other person for the purpose of achieving the objects of local government in terms of section 152 of the Constitution; or

(iii) in the form of a lien, pledge, mortgage, cession or any other hypothecation of an asset or right or by giving any other form of collateral.

(b) The municipality may, in respect of security provided as contemplated in subparagraph (a) -

(i) undertake to effect payment directly from money or sources that may become available and authorize the lender or investor direct access to such sources to ensure payment of the secured debt or the performance of the secured obligations, provided that this form of security may not detract from the municipality’s obligations with regard to its primary bank account;

(ii) undertake to deposit funds with the lender, investor or third party as security;

(iii) agree to specific payment mechanisms or procedures to ensure exclusive dedicated payment to lenders or investors, including revenue intercepts, payments into dedicated accounts or other payment mechanisms or procedures;

(iv) cede as security any category of revenue or rights to future revenue;

(v) undertake to have disputes resolved through mediation, arbitration or other dispute-resolution mechanisms;


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(vi) undertake to retain revenues or specific municipal tariffs or other charges, fees or funds at a particular level or at a level sufficient to meet its financial obligations;

(vii) undertake to make provision in its budgets for the payment of its financial obligations, including capital and interest;

(viii) agree to restrictions on debt that the municipality may incur in future until the secured debt is settled or the secured obligations are met; and

(ix) agree to such other arrangements as the municipality may consider necessary and prudent.

(c) The Council resolution authorizing the provision of security -

(i) must determine whether the asset or right with respect to which the security is provided is necessary for providing the minimum level of basic municipal services; and

(ii) must indicate the manner in which the availability of the asset or right for the provision of the minimum level of basic municipal services contemplated in subparagraph (i) will be protected.

(d) If the Council by resolution has determined that the asset or right is necessary for providing the minimum level of basic municipal services, neither the party to whom the municipal security is provided, nor any successor or assignee of such party may, in the event of a default by the municipality, deal with the asset or right concerned in a manner that would preclude or impede the continuation of that minimum level of basic municipal services.

(e) A determination in terms of subparagraph (c) that an asset or right is not necessary for providing the minimum level of basic municipal services is binding on the municipality until the secured debt has been paid in full or the secured obligations have been performed in full, as the case may be.

(8) Disclosure

(a) Any official negotiating a loan on behalf of the municipality must, when interacting with a prospective lender or when preparing documentation for consideration by a prospective investor -

(i) disclose all known information that may be material to the decision of that prospective lender or investor; and

(ii) take reasonable care to ensure the accuracy of any information disclosed.


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(b) A lender or investor may rely on written representations of the municipality signed by the accounting officer, if the lender or investor did not know and had no reason to believe that those representations were false or misleading.

(9) Municipal Guarantees

The municipality may not issue any guarantee for any commitment or debt of any organ of state or person except if the guarantee concerned is within the limits specified in its approved budget.

(10) Provisions of Regulations on Debt Disclosure

This policy must be read in conjunction with the relevant and pertinent provisions of the Regulations contained in Annexure A to this policy.

ANNEXURE A

MUNICIPAL REGULATIONS ON DEBT DISCLOSURECONTAINED IN GOVERNMENT NOTICE R492 OF 15 JUNE 2007

(a) Debt incurred otherwise than through the issue of municipal debt instruments.

The following requirements shall be complied with when municipal debt is to be incurred otherwise than through the issue of municipal debt instruments and for purposes of this paragraph, a "municipal debt instrument" means any note, bond, debenture or other evidence of indebtedness issued by a municipality or municipal entity, including dematerialised or electronic evidence of indebtedness intended to be used in trade.

(1) When entering into discussions with a prospective lender, other creditor or underwriter with a view to incurring municipal debt, the municipality must indicate in writing to the prospective lender, other creditor or underwriter whether it intends to incur short-term or long-term debt, and -

(a) if it intends to incur short-term debt, whether the purpose of the debt is to bridge -

(i) shortfalls within a financial year as contemplated in section 45(1)(a) of the Act; or

(ii) capital needs within a financial year as contemplated in section 45(1)(h) of the Act; or

(b) if it intends to incur long-term debt, whether the purpose of the debt is for -

(i) capital expenditure on property, plant or equipment as contemplated in section 46(1)(a) of the Act; or


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(ii) re-financing existing long-term debt as contemplated in section 46(1)(h) of the Act.

(2) When entering into discussions with a prospective lender, other creditor or underwriter with a view to incurring short-term or long-term debt, the municipality must make available to the prospective lender, other creditor or underwriter certified copies of -

(a) its audited financial statements for the preceding three financial years, together with an indication whether or not the audit deadline referred to in section 126(1) and section 126(2) of the Act has been met;

(b) its approved annual budget;

(c) the municipality's integrated development plan; and

(d) its repayment schedules pertaining to its existing short-term and long-term debt.

(b) Debt incurred through the issue of municipal debt instruments

The following requirements shall be complied with when municipal debt is to be incurred through the issue of municipal debt instruments:

(1) The municipality must:

(a) obtain a credit rating from an independent credit rating institution before it can incur debt through municipal debt instruments with effect 1 July 2008; and

(b) prepare and, in accordance with this subparagraph, issue a disclosure statement prior to the issuing of such instruments.

(2) Subparagraph (1) applies irrespective of whether or not the municipal debt instruments are to be sold publicly or placed privately or listed on any securities exchange.

(3) If municipal debt instruments are to be issued in accordance with a pre-determined borrowing programme or framework -

(a) no disclosure statement is required at the stage of development and adoption of the programme or framework; and

(b) subparagraph (1) only becomes applicable in respect of any municipal debt instruments to be issued in terms of the programme or framework after the type of instrument has been determined.


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(4) Subparagraph (1) does not preclude the inclusion in a disclosure statement of any other information which is required in terms of any other legislation or the rules of any securities exchange on which the municipal debt instruments are to be listed.

(5) If the information that must, in terms of this subparagraph, be included in a disclosure statement is included in a prospectus, offering-circular or other disclosure document required by other legislation or the rules of any securities exchange on which the municipal debt instruments are to be listed, such prospectus, offering-circular or other disclosure document may for the purpose of the regulations be regarded to be a disclosure statement.

(6) The credit rating obtained in terms of subparagraph (1) must annually be reviewed by an independent credit rating institution until the municipal debt instrument has been redeemed.

(7) A disclosure statement issued by the municipality must be signed by the accounting officer.

(8) The accuracy of the information set out in a disclosure statement must be confirmed by -

(a) an opinion from an independent auditor registered with the Independent Regulatory Board for Auditors;

(b) a legal opinion; and

(c) the opinions referred to in (a) and (b) above must be included in the disclosure statement together with any qualifications subject to which they were issued.

(9) A disclosure statement issued by the municipality is issued by submitting copies of the statement prior to the date of issue of the municipal debt instruments to -

(a) prospective underwriters, where necessary, and primary market investors;

(b) prospective secondary market investors, but only on request; and

(c) any relevant securities exchange, if the municipal debt instruments are to be listed on a securities exchange.

(10) A copy of a disclosure statement in terms of this subparagraph must be submitted to the National and Provincial Treasury within seven working days of issuing the municipal debt instruments.

(11) A disclosure statement issued by the municipality must set out the following information:

(a) the name of the municipality;


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(b) where the municipality is located;

(c) confirmation of the intent to borrow by the council including the resolution required in terms of section 46(2) of the Act;

(d) the exact wording of the information statement required in terms of section 46(3) of the Act; and

(e) any restrictions or limits imposed on borrowing which arise by virtue of any agreement, resolution or otherwise.

(12) A disclosure statement issued by the municipality must set out the following information concerning the issue of municipal debt instruments:

(a) the issue date;

(b) the purposes for which funds raised by the issue will be used;

(c) the total principal amount of municipal debt instruments issued;

(d) if the current issue of municipal debt instruments is part of a larger issue of such instruments by the municipality -

(i) the total amount of the larger issue; and

(ii) the amount of any previous debt incurred within that larger issue;

(e) the aggregate amount of interest payable in respect of the issue over the repayment period, as calculated at the issue date;

(f) the applicable interest rate, or the basis for determination thereof if not determined, and the method for the calculation thereof in summary form, and the date from which interest will accrue;

(g) the due dates for payment of any amounts payable;

(h) the final maturity date;

(i) any legal restrictions under which the municipal debt instruments will be offered, sold, transferred or delivered;

(j) the status of the municipal debt instruments and the subordination thereof in relation to the other debts of the municipality or municipal entity;

(k) the subscription or cancellation rights of any lender, underwriter or investor;

(I) whether the municipal debt instruments will be listed on a securities exchange and details of such listing;

(m) debt amortisation terms;


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(n) procedures relating to the method of issue or allocation;

(o) clearing and settlement procedures;

(p) a summary of the most important rights of persons who will be holders of the municipal debt instruments;

(q) any penalty or early redemption premium payable by the municipality or municipal entity;

(r) the minimum denominations in which the municipal debt instruments may be taken up by any person;

(s) the details of any security to be provided by the municipality or municipal entity and where the relevant documentation will be available for inspection;

(t) whether any asset or right in respect of which security is provided has been determined by a council resolution in terms of section 48(3) of the Act to be necessary for the provision of the minimum level of basic municipal services, and if so, the manner in which the availability of the asset or right for the provision of that minimum level of basic services will be protected; and

(u) such other key terms and salient features of the debt transaction as may be necessary to enable a potential lender or investor who was not a party to the original transaction to understand the essence of the transaction concerned.

Where interest rates applicable to an issue of municipal debt instruments are not fixed rates, then reasonable and neutral assumptions as to the applicable future rates must be used to calculate the aggregate amount of interest referred to in (e) above, and such assumptions must be clearly explained.

Where interest rates applicable to an issue of municipal debt instruments are fixed rates, the terms and conditions applicable to that fixed interest debt instrument must also be explained in the disclosure statement.

(13) A disclosure statement issued by the municipality must set out the full names, and the relevant qualifications and experience of the accounting officer, the chief financial officer and the person that will be responsible for administering the debt and repayment of the debt, if this responsibility is not vested with the chief financial officer.

(14) A disclosure statement must also set out -

(a) the names, contact persons, addresses, contact details and any registration details of the legal and financial advisors and auditors of the municipality and whether or not those advisors are officials of the municipality;


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(b) the addresses where relevant documentation is available for inspection by potential lenders, underwriters, investors and other interested persons; and

(c) the names and contact details of persons who are available to provide any further information.

(15) A disclosure statement issued by the municipality must include the following information concerning the financial situation and financial management of the municipality:

(a) details concerning the long-term debt of the municipality including -

(i) the date and amount of each loan and of each issue of municipal debt instruments;

(ii) the identity of its creditors, except in the case of listed municipal debt instruments;

(iii) the capital amount outstanding on each loan and on each issue of municipal debt instruments;

(iv) the applicable interest rate on each loan and on each issue of municipal debt instruments; and

(v) the repayment schedules for its long-term debt and a summary of any security provided to secure such debt;

(b) the amount of any short-term debt outstanding at the close of each of the three months preceding the date of the disclosure statement;

(c) the revenue of the municipality for the preceding three financial years, or in the case of a municipal entity which was not in existence during all three of those financial years, then for those financial years it was in existence, stating separately -

(i) any allocations received in terms of the annual Division of Revenue Act;

(ii) any revenue from service fees, property rates, and other charges; and

(iii) any revenue from other sources;

(d) details of any default by the municipality on outstanding or repaid debt during the preceding three years;

(e) the reserves of the municipality or municipal entity;


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(f) a summary of any policies and practices of the municipality in respect of the collection of unpaid service fees, property rates, and other charges;

(g) a summary of the policy of the municipality on the incurring of debt;

(h) a summary of the long-term financial or capital strategy of the municipality or;

(i) a summary of the investment policy of the municipality;

(j) a summary of the risk management policy of, and measures taken by, the municipality;

(k) a summary of the nature and amounts of letters of credit, guarantees, insurance policies, and other credit enhancements which relate to the debt;

(l) a summary of the capital or debt repayment plan or strategy of the municipality; and

(m) the credit rating report.

(16) The disclosure statement issued by the municipality must set out the following information pertaining to local economic indicators:

(a) the ten employers employing the greatest number of persons within the area of the municipality;

(b) the ten major contributors to the municipal rate base;

(c) growth projections in the area of the municipality for the next five years; and

(d) any material risk factors which, in accordance with the assessment of the municipality, will have a direct impact on its ability to meet its repayment obligations.

(17) The municipality, in the event of it having incurred debt through the issuing of municipal debt instruments, must, annually within 90 days after the end of the financial year until the debt has been repaid, prepare a consolidated disclosure statement reflecting -

(a) details of all debt instruments contained in the individual disclosure statements;

(b) any changes relating to the information disclosed in the initial disclosure statement or previous update of the consolidated disclosure statement.

(18) The municipality must place the annually updated disclosure statement prepared in terms of subparagraph 16 on the municipal debt disclosure depository. If there are


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no changes, the annually updated disclosure statement must so indicate and be placed on the municipal debt disclosure.

(c) General disclosure requirements

(1) Where debt incurred by a municipality is to be repaid from revenues linked to a particular municipal service, the municipality must disclose the following information, irrespective of whether the debt was incurred by way of the issuing of municipal debt instruments or in any other way:

(a) whether the rights of recovery of a lender or investor against the municipality is limited -

(i) to revenues linked to that particular service; or

(ii) in any other respect;

(b) particulars of any security provided by the municipality; and

(c) operational statistics pertaining to that particular municipal service and

(d) any other municipal service that is relevant to the debt transaction.

(2) A disclosure in terms of subparagraph (1) must -

(a) be contained in the disclosure statement if the debt is incurred through the issuing of municipal debt instruments; or

(b) be made by written notice to the lender if the debt is incurred in any other way.

(d) Material event disclosures

In the event of the municipality having incurred debt, irrespective of whether by way of the issuing of municipal debt instruments or otherwise, it must provide written notification to lenders, investors and other holders of record of such debt instruments or debt, any designated fiduciaries representing any such lenders, investors or holders, any securities exchange on which the instruments are listed, and the National Treasury and relevant Provincial Treasury, as soon as possible after becoming aware, of -

(i) any event which is likely to affect the ability of the municipality to meet its repayment or security obligations in respect of its debt;

(ii) any failure by the municipality to meet its repayment obligations on the due date other than non-payment for technical reasons which is remedied within 72 hours;

(iii) any failure by the municipality to meet -


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(a) any of its obligations pertaining to security provided by the municipality ; or

(b) any other obligation constituting a default as defined for purposes of a debt transaction;

(iv) any new debt incurred by the municipality;

(v) the provision of any additional security by the municipality to an existing creditor; or

(vi) any mandatory intervention by the provincial executive in terms of Chapter 13 of the Act.

(e) Availability of documents

Without derogating from any obligation to make documents available at places set out in a disclosure statement, the municipality must keep readily available at its main office for inspection, on request of any interested person, copies of all documents relating to a debt transaction or documentation required to be disclosed or made available including -

(i) any documentation referred to in regulation 4;

(ii) any guarantees, security arrangements or other credit enhancement arrangements;

(iii) all advertisements, notices, resolutions, information statements, disclosure statements;

(iv) annual updates of disclosure statements referred to in regulation 14; and

(v) any material event disclosures referred to in regulation 16.

(f) Compulsory disclosures relating to securities backed by municipal debt

(1) If a person, other than the municipality, plans to issue securities backed by municipal debt, that person must prepare and, in accordance with this subparagraph, issue a disclosure statement prior to the issuing of such securities.

(2) Subparagraph (1) applies irrespective of whether the securities backed by municipal debt are to be -

(a) sold publicly or placed privately; or

(b) listed on any securities exchange.

(3) Regulations 6(3), (4) and (5) and 8, read with any changes that the context may require, also apply to a disclosure statement that must be issued by a person referred to in subparagraph (1).


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(4) A disclosure statement issued by a person referred to in subparagraph (1) must he signed on behalf of that person by the chief executive officer or, if there is no chief executive officer, the person in charge.

(5) The accuracy of the information set out in a disclosure statement referred to in this paragraph must be confirmed by -

(a) an opinion from an independent auditor registered with the Independent Regulatory Board for Auditors;

(b) a legal opinion; and

(c) the opinions referred to in (a) and (b) must be included in the disclosure statement together with any qualifications subject to which the opinions were issued.

(6) A disclosure statement issued by a person referred to in subparagraph (1) must set out the following information:

(a) the name of the person;

(b) if it is a company -

(i) its company registration number; and

(ii) a summary of its articles and memorandum;

(c) if it is another kind of entity or an association or partnership -

(i) any registration number allocated to it in terms of any applicable legislation; and

(ii) its constituting documents;

(d) details of its ownership structure;

(e) confirmation of the intent to issue securities backed by municipal debt by the board of directors or other managing body, including a certified copy of the resolution approving the proposed issue of securities;

(f) details of the municipal debt to be utilised for the issue of the proposed securities backed by municipal debt;

(g) the name of the municipality; and

(h) any restrictions or limits imposed on borrowing which arise by virtue of any agreement, resolution or otherwise.


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(7) A disclosure statement issued by a person referred to in subparagraph (1) must set out the following information concerning the issue of securities backed by municipal debt:

(a) the issue date;

(b) the purposes for which funds raised by the issue will be used;

(c) the total principal amount of the securities to be issued;

(d) if the current issue of securities is part of a larger issue of securities backed by municipal debt by the person referred to in subparagraph (1) -

(i) the total amount of the larger issue; and

(ii) the amount of any previous securities issued within that larger issue;

(e) the aggregate amount of interest payable in respect of the issue of the securities over the repayment period, as calculated at the issue date;

(f) the applicable interest rate, or the basis for determination thereof, if not determined, and the method for the calculation thereof in summary form, and the date from which interest will accrue;

(g) the due dates for payment of any amounts payable;

(h) the final maturity date;

(i) any legal restrictions under which the securities will be offered, sold, transferred or delivered;

(j) the subscription or cancellation rights of any lender, underwriter or investor;

(k) whether the securities will be listed on a securities exchange and details of such listing;

(l) debt amortisation terms;

(m) procedures relating to the method of issue or allocation;

(n) clearing and settlement procedures;

(o) a summary of the most important rights of holders of such securities;

(p) any penalty or early redemption premium payable by the person referred to in regulation 18;

(q) the minimum denominations in which the securities may be taken up by any person; and

(r) such other key terms and salient features of the debt transaction as may be necessary to enable a potential holder of such securities who was not a


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party to the original transaction to understand the essence of the transaction.

Where interest rates applicable to an issue of securities backed by municipal debt are not fixed rates, then reasonable and neutral assumptions as to the applicable future rates must be used to calculate the aggregate amount of interest referred to in (e) and such assumptions must be clearly explained.

(8) A disclosure statement issued by a person referred to in subparagraph (1) must set out -

(a) the names, contact persons, addresses, contact details and any registration details of the legal and financial advisors and auditors of the person referred to in subparagraph (1);

(b) the addresses where relevant documentation is available for inspection by potential lenders, underwriters, investors and other interested persons; and

(c) the names and contact details of persons who are available to provide any further information.

(9) A disclosure statement issued by a person referred to in subparagraph (1) must set out the following information concerning the financial situation and financial management of the municipality or municipal entity whose debt is to be used for the issue of securities backed by municipal debt:

(a) details with respect to the long-term debt of the municipality or municipal entity, including -

(i) the date and amount of each loan and of each issue of municipal debt instruments;

(ii) the identity of its creditors, except in the case of listed municipal debt instruments;

(iii) the capital amount outstanding on each loan and on each issue of municipal debt instruments;

(iv) the applicable interest rate on each loan and on each issue of municipal debt instruments; and

(v) the repayment schedules for its long-term debt and a summary of any security provided to secure such debt;

(b) the amount of any short-term debt of the municipality outstanding at the close of each of the three months preceding the date of the disclosure statement;


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(c) the revenue of the municipality in respect of the preceding three financial years stating separately -

(i) any allocations received in terms of the annual Division of Revenue Act;

(ii) any revenue from service fees, property rates, and other charges: and

(iii) any revenue from other sources;

(d) details of any default by the municipality pertaining to outstanding or repaid debt during the preceding three years;

(e) the reserves of the municipality;

(f) a summary of the policies and practices of the municipality in respect of the collection of unpaid service fees, property rates and other charges;

(g) a summary of the policy of the municipality on the incurring of debt;

(h) a summary of the long-term financial or capital strategy of the municipality;

(i) a summary of the investment policy of the municipality;

(j) a summary of the risk management policy of, and any measures taken by, the municipality;

(k) a summary of the nature and amounts of letters of credit, guarantees, insurance policies, and other credit enhancements which relate to the debt; and

(l) whether any credit rating has been applied by a rating agency to the municipality and whether or not a rating was obtained, and if obtained, what rating, from which agency and when it was obtained.

(g) Failure to disclose compulsory information

The failure in good faith to disclose any matter in a disclosure statement or update of a disclosure statement does not affect the validity of the debt transaction to which that disclosure statement or update relate.

(h) Notification of failure to meet a debt obligation

Any failure by the municipality to meet -

(i) any of its obligations pertaining to security provided by the municipality; or


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(ii) any other obligation constituting a default as defined for purposes of a debt transaction -

must be notified by the respective parties to the contract to the National Treasury within four working days of the default.

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Documents

Sakhisizwe Municipality – Municipal Loans Policysakhisizwe.gov.za/uploads/documents/(13) Loans Policy...Sakhisizwe Municipality – Municipal Loans Policy Page 6 of 21 (6) Conditions