Moody’s Investors Service has upgraded both the Global Scale Ratings and National Scale Ratings of the City of Johannesburg. The Global Scale Ratings has been raised from Baa3 to Baa2, the same level as the sovereign rating while the National Scale Ratings has been raised by four notches up from A2.za to Aa1.
To put this into context, the Global Scale Rating of Baa2 is the highest possible rating that can currently be achieved by institutions with the best credit quality in South Africa. Further, the City of Johannesburg is the only Metro to have achieved such a feat of a Global Scale Ratings upgrade in the current round of rating reviews.
Executive Mayor Parks Tau said the successes and vote of confidence in the City of Johannesburg demonstrated by Moody’s did not just happen in and of itself. “We identified financial resilience as a priority for the City, set a team to put together the City’s Financial Development Plan and pushed hard for its implementation. The accolades now received are an affirmation of the correctness of our strategies in managing the finances of the City,” said Tau.
Tau noted that Joburg was last year the largest per capita infrastructure spender in government, after national government itself.
Joburg City Manager, Trevor Fowler said words used by Moody’s now and Fitch Ratings Agency in December to describe the prudence with which the finances were managed were humbling. “It’s important to stress that Joburg is a City least dependent on national government grants as we generate a bulk of our own finances,” said Fowler.
In dually upgrading the ratings, Moody’s notes the City’s prudence and consistency in managing its finances as evidenced by the following:
The City’s financial performance has improved in the last three years. Net direct debt has declined from 35 percent of operating revenue in 2011 to 30 percent in 2015. The City has maintained its good liquidity position despite funding 30 percent of capital expenditure from own sources.
During the 2015 financial year the City invested R10.2 billion on capital infrastructure, an increase of 37 percent from 2014.
The above is a clear and bold testament that the City’s administration continues to be innovative and active in de-risking the City from potential sources of risks emanating from an ever-changing global operating environment through the use of the Financial Development Plan.
This rating upgrade comes as no surprise and is the result of the City of Johannesburg’s sustained demonstration of its financial resilience as evidenced by the generation of recurring surpluses, and its desire to improve service delivery through accelerating the rate of rolling out the R100 billion 10-year capital expenditure programme within the context of a volatile global economic environment in which emerging markets have been most at risk. This dual rating upgrade comes hard on the heels of another upgrade of the City by Fitch Ratings in December.
The benefit of this dual upgrade is that credit spreads on the City’s listed bonds should become narrow and make them more attractive to investors while simultaneously lowering the cost of new debt incurred to fund capital expenditure. The upgrade is therefore expected to lower the relative cost of rolling out infrastructure in the City.
As an agile entity, the City continues to experience strong revenue growth underpinned by its status as South Africa’s business capital and main financial and economic centre, which allows it access to a broad tax base.
The City’s economy is large and well diversified enough to absorb any adverse effects of the changing global economic climate.
