Gdynia chooses ING Bank for munibond issue
The city hopes to raise zl. 28 million through the bond issue, one of the first in Poland, which is being planned for the first half of 1996. The proceeds from the issue will be used to finance the purchase of 50 new Mercedes buses for the city's public transportation system.
"This is opening up the door to an entirely new form of financing," said Andrzej Goldmann, treasurer for the City of Gdynia. "I'm sure once it goes well, other municipalities will want to try it as well."
Goldmann pointed out that many of the details concerning the issue have yet to be settled, and that the city council still has to approve the appointment. "But at least we know which direction we're going and who we'd like to go with," he said.
The issue will be privately-placed, meaning the offer can be addressed to no more than 300 investors, most of whom will be institutional investors. Maturity is expected to be around four years, but the pricing is yet to be determined. The bonds will carry a general obligation to repay, as no legal framework exists for the issuance of revenue-specific bonds.
Rather than jump right onto the municipal bond bandwagon, the city invited offers from 15 financial institutions on how to finance the investment in buses. Ten of the offers were for loans, while five submitted proposals for a bond issue.
While the bank did receive offers for foreign currency loans at competitive rates, Goldmann said the board opted for the bond issue to avoid exchange rate risks (the bonds will be zloty-denominated). The city will take out a loan for the purchase of the first ten buses, to be paid off in six months.
The two factors which led to the decision to choose ING were price and security, Goldmann said. "ING's offer was the cheapest, and they agreed to underwrite the entire issue," he said, pointing out that ING was also a pioneer in introducing commercial paper (KWIT) to the Polish market.
But there are still barriers to be overcome, both on the side of the city and on the national level. "The big barrier for the issue is being able to pay it off," Goldmann said. "The city council has to decide how much they can pay and then write it into the budget." The city is expected to finalize the agreement with ING by the end of September, and the prospectus for the issue is to be prepared by mid-November.
On the national level, changes will have to be made to the Insurance law which would allow insurance companies - one of the most likely investors in municipal bonds - to buy them. As municipal bonds weren't even talked about when the law was written in 1990, they were not included on the list of securities in which insurance companies may invest. Municipalities are also hoping the government will offer the same tax incentives to municipal bonds that exist for state treasury securities.
Disclosure guidelines tailored to municipal bonds will have to be laid down by the Securities Exchange Commission before mutual funds and investment funds will be able to invest substantially in municipal bonds. Research Triangle Institute, a company advising municipalities under a US AID contract, is currently working with the SEC on this issue.
Interest from local governments in municipal bonds is growing, and cities like Krakow - currently in the process of choosing an underwriter and advisor for its bond issue (see WBJ August 4-24) - are also planning to issue early in 1996.
"This is opening up the door to an entirely new form of financing," said Andrzej Goldmann, treasurer for the City of Gdynia. "I'm sure once it goes well, other municipalities will want to try it as well."
Goldmann pointed out that many of the details concerning the issue have yet to be settled, and that the city council still has to approve the appointment. "But at least we know which direction we're going and who we'd like to go with," he said.
The issue will be privately-placed, meaning the offer can be addressed to no more than 300 investors, most of whom will be institutional investors. Maturity is expected to be around four years, but the pricing is yet to be determined. The bonds will carry a general obligation to repay, as no legal framework exists for the issuance of revenue-specific bonds.
Rather than jump right onto the municipal bond bandwagon, the city invited offers from 15 financial institutions on how to finance the investment in buses. Ten of the offers were for loans, while five submitted proposals for a bond issue.
While the bank did receive offers for foreign currency loans at competitive rates, Goldmann said the board opted for the bond issue to avoid exchange rate risks (the bonds will be zloty-denominated). The city will take out a loan for the purchase of the first ten buses, to be paid off in six months.
The two factors which led to the decision to choose ING were price and security, Goldmann said. "ING's offer was the cheapest, and they agreed to underwrite the entire issue," he said, pointing out that ING was also a pioneer in introducing commercial paper (KWIT) to the Polish market.
But there are still barriers to be overcome, both on the side of the city and on the national level. "The big barrier for the issue is being able to pay it off," Goldmann said. "The city council has to decide how much they can pay and then write it into the budget." The city is expected to finalize the agreement with ING by the end of September, and the prospectus for the issue is to be prepared by mid-November.
On the national level, changes will have to be made to the Insurance law which would allow insurance companies - one of the most likely investors in municipal bonds - to buy them. As municipal bonds weren't even talked about when the law was written in 1990, they were not included on the list of securities in which insurance companies may invest. Municipalities are also hoping the government will offer the same tax incentives to municipal bonds that exist for state treasury securities.
Disclosure guidelines tailored to municipal bonds will have to be laid down by the Securities Exchange Commission before mutual funds and investment funds will be able to invest substantially in municipal bonds. Research Triangle Institute, a company advising municipalities under a US AID contract, is currently working with the SEC on this issue.
Interest from local governments in municipal bonds is growing, and cities like Krakow - currently in the process of choosing an underwriter and advisor for its bond issue (see WBJ August 4-24) - are also planning to issue early in 1996.
