Moody’s downgrades Pretoria’s rating

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Moodys downgrading of the City of Tshwanes rating will not impact on the mayors plans for improvements in the capital and for attracting investment. Picture: Thobile Mathonsi

Pretoria - Negative opinions on the City of Tshwane’s credit rating will not deter the executive from its commitment to improving the city and attracting investment.

So says the mayor’s spokesman, Blessing Manale, following news that Moody’s has downgraded the City of Tshwane’s issuer rating, saying its debt levels have increased significantly.

Manale said the Tshwane Metro was able to meet its long-term debt commitments and that it was going ahead with projects that would improve the lives of its residents.

The Moody’s report – which provides credit ratings and research covering debt instruments and securities – emphasised that the outlook on ratings was negative.

The downgrading followed the significant increase in the city’s debt levels to fund its R13.2 billion capital expenditure programmes from this year to 2015.

The programmes have led to the city’s debt growing in this fiscal year to R8bn, equivalent to 41 percent of the capital’s operating revenue.

This is a significant rise from the 35 percent last year – and substantially higher than the 27 percent median among the South African metropolitan cities rated by Moody’s this year.

The report said the city expected to incur about R1.5bn in new debt a year from next year to 2016, which would result in a stabilisation of its debt-to-operating revenue ratio at about 40 percent.

The report added that the costs associated with Tshwane’s capital expenditure programme had a negative impact on its cash flow.

In the report, Moody’s acknowledged that the expenditure pressures Tshwane was facing emanated from the incorporation into the metro of two adjacent municipalities with relatively weak fiscal capacity.

The growing costs for service delivery were behind the 36 percent increase in operating costs, the report said.

Manale said the municipality had noted the rating with concern, considering that it differed from that by the Global Credit Rating Agency, which was based on the same financial figures.

The reason for the significant increase was that during 2011/12, the city planned to raise R 1.5bn through the debt capitals market by issuing an inaugural municipal bond, he said.

But the bond was obstructed and the city therefore took up loans for R1bn.

“The city then funded the remaining R500 million deficit from its operating revenue, which demonstrated a healthy position in terms of cash reserves,” Manale said.

“During the 2012/13 financial year, instead of the city issuing a bond of R1.6 billion, we issued an inaugural bond of R2.1bn which was fully subscribed, again demonstrating the confidence investors have in the city.

“This pushed the city debt-to-revenue level from 35 percent to 41 percent, on which Moody’s commented positively in issuing the April credit rating.

At the time, there was no indication by Moody’s that there were concerns about the city’s debt levels which might even see us being downgraded.”

Manale said National Treasury guidelines stipulated that municipalities’ debt-to-revenue ration must not exceed 50 percent.

Tshwane’s 41 percent was far from that benchmark, he added. He noted that the city had incorporated municipalities that were cash-strapped and which had significant infrastructure backlogs and long-standing creditors.

“On August 29, the executive mayor tabled a report in the council on the cost of the merger, which was not funded by the national or provincial fiscus through a restructuring grant,” Manale said.

“The cost the city committed on the merger without assistance was R1bn and this is also articulated by the downgrading.

“The city has escalated the matter to the Fiscal and Financial Commission.” - Pretoria News

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