Moody’s Investors Service has upgraded its National Scale Rating of the City of Johannesburg by four notches from A2.za to Aa1.
The Global Scale Ratings has been raised from Ba3 to Baa2, the same level as the sovereign rating. This is the highest possible rating that can currently be achieved by institutions with the best credit quality in South Africa. 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.
This follows the recent upgrading of the City’s national long-term rating and the national senior unsecured rating on outstanding bonds from AA- to AA and the affirmation of its national short-term rating at F1+ with a stable outlook by Fitch Rating Agency. In upgrading the City’s 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% of operating revenue in 2011 to 30% in 2015.
- The City has maintained its good liquidity position despite funding 30% of capital expenditure from own sources.
- During the 2015 financial year the City invested ZAR10.2 billion on capital infrastructure, an increase of 37% from 2014.
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 Mayor Tau.
Mayor 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.
The city has maintained healthy liquidity levels of around R5 billion while embarking on a R100 billion Capital Expenditure over the next ten years, averaging R10 billion per year. 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 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.