UNDERLINING an earlier report that its financial position was robust and healthy, the municipality said a decision by Fitch, the global ratings agency, to confirm its status reflected a confidence in the administration’s capacity to manage the financial affairs of South Africa’s largest city.
In a press statement, the council spokesperson, Gabu Tugwana, said the City manager, Trevor Fowler, had welcomed Fitch’s decision to keep Joburg’s status unchanged and to affirm its “long-term senior unsecured rating on outstanding bonds”.
According to Fitch’s ratings, Johannesburg has a long-term local currency rating of BBB+, a national long-term rating of AA-(zaf) and a national short-term rating of F1+ (zaf). “The outlooks are stable,” Fitch found.
“The rating affirmation reflects the continued improvement in Johannesburg’s liquidity and working capital in line with Fitch’s expectations as well as moderate borrowing, which has stabilised debt at around 45 percent of revenues and equal to less than 10 years of the current balance,” Tugwana explained.
Fowler said the City had taken note of concerns raised about its billing system “but is confident that the consolidation of new systems in its revenue department is yielding a positive trend”.
He said Fitch’s indication of an operating margin improvement of 15 percent and a debt-to-current balance strengthening below five years could lead to a future upgrade in the ratings.
“The Fitch report makes positive remarks on the City’s progress in consolidating its capital budget. With investment declining to pre-2010 World Cup levels of R4-billion, Johannesburg has posted its second consecutive year of overall balanced budget according to Fitch’s calculations,” Tugwana said.
The portfolio head of finance, Geoffrey Makhubo, said the report confirmed the City’s finances were in a healthy state despite the global recession. “This confidence is also reflected in the decisions of fund managers in the private sector who have in the past year participated in the municipal bonds issued by the City,” he said.
Joburg was the first municipality in South Africa to successfully issue commercial paper, an interest-bearing or discounted short-term loan issued by a non-financial corporation with a good to excellent credit rating to raise cash quickly to finance short-term credit needs.
All commercial paper issued in the 2010/11 financial year was redeemed on time. To date, the City has issued seven municipal bonds, which were oversubscribed. It registered a R13-billion domestic medium term note programme under which the sourcing of funds was diversified to include commercial paper, floating rate notes, institutional bonds and Jozibonds.
The bonds required the lender to have a minimum of R1-million and run for a year upwards. Through the bonds, the City borrowed money at an interest rate slightly above what banks offered, using the money to finance its debts and fund other capital projects.
Investors have also displayed strong confidence in Joburg’s robust economy and institutional bonds. The latest bond was issued in March and Makhubo said this had demonstrated the confidence that “reputable financial institutions” had in the financial management of the City and its long-term outlook.
The latest credit rating by Fitch affirmed confidence in the City’s ability to manage its finances, he added.