Aberdeen Council mulls bond sale for £1bn plan

Jennifer Laing

Aberdeen City Council said it has launched a process which may result in the issue of a bond to support a transformational £1 billion capital programme.

“Assuming it proceeds to market, Aberdeen will become the first local authority in Scotland to raise funds through the capital markets,” said the council in a London Stock Exchange statement.

The council said index-linked bonds may be launched in the near future, subject to market conditions, as “the organisation underlines its commitment to economic growth by utilising innovative funding mechanisms.”

It said that as part of a strategy to maintain a diversified funding portfolio, providing greater financial flexibility, “applications will be made to the UK Listing Authority for the bonds to be admitted to the Official List and to the London Stock Exchange for the bonds to be admitted to trading on the London Stock Exchange’s regulated market.”

Moody’s Investors Service confirmed an Aa2 issuer credit rating on October 7 — one level below the United Kingdom as a whole — with Aberdeen City Council becoming the first local authority in Scotland to be assigned a credit rating.

“The proceeds from the bond issue will be used to drive a capital programme which includes investment in vital infrastructure throughout the city,” said the council.

“This includes the comprehensive City Centre Masterplan, school and housing developments, roads construction, digital enhancements and a variety of key projects designed to act as a catalyst for economic growth.”

In announcing the Aa2 rating, Moody’s said its decision reflected Aberdeen City Council’s “strong institutional framework” as well as a “strong track record of operating performance” and added “the council has demonstrated a solid financial record for the last five years maintaining a net surplus against budget for each year.”

Moody’s also noted Aberdeen’s “wealthy local economy, albeit dependent on key industries.”

The council said the city makes a major contribution to the Scottish and UK economies, with a Gross Value Added (GVA) contribution of £18 billion and a GVA per head of £37,460 — the highest in the UK after inner London and 65% higher than the Scottish average.

Aberdeen City Council leader Jennifer Laing said: “The prospect of a bond issue has the potential to be one of the most significant events in the history of our city.

“Following on from the assignment of the credit rating, it would be another first for a Scottish local authority and we are proud to be leading the way with innovation in public sector finance.

“A bond issue represents the best value for the city of Aberdeen and would reduce borrowing costs substantially as we continue on our journey towards creating a ‘Smarter City’.

“By being proactive in our approach to capital funding, we are clearly being mindful of our duty to protect the revenue budget which is the bedrock of our service delivery.”

Finance, Policy and Resources committee convener Councillor Willie Young said: “When the credit rating was assigned we spoke of the important part our financial management and corporate governance had played.

“The strength of the rating reflected the external assessment of Aberdeen City Council as an organisation.

“We have explored a wide range of options as we continue our investment in a capital programme which will support the city’s growth and diversification during such a crucial period for the region.

“The launch of a bond issue would be a hugely important step forward.”

Derek Mackay, the Scottish Government’s Cabinet Secretary for Finance and Constitution, said: “We welcome Aberdeen City Council’s innovation in using the capital markets as a route to finance.

“Investment in infrastructure throughout the country is vital to Scotland’s future and this bond issue has the potential to support a number of key projects in Aberdeen in the years ahead.

“It is a funding mechanism which has great potential for wider use in Scotland.

“These key projects planned for Aberdeen in the years ahead will be good for the city, for the North-East and for Scotland as a whole.”