Moody’s affirms Joburg’s investment-grade rating

24 October 2018

Today, rating agency, Moody’s, affirmed the City’s long-term issuer and debt investment-grade ratings of Baa3 (global scale, local currency) and Aa1.za (national scale, local currency) and short-term issuer ratings of P-3 (global scale, local currency) and P-1.za (national scale, local currency).

This comes on the heels of the rating released by Global Credit Rating Co, which assigned the City with a long-term rating of , with the short-term rating at  and a stable outlook, despite the City operating within a deteriorating global and national economic environment and historic challenges inherited by the new administration.

Both ratings afforded the City investment-grade status. These ratings affirm the City’s sustained position as a pre-eminent investment destination both locally and on the continent.

Despite affirming the City’s rating, Moody’s cited risk surrounding constrained liquidity as the source for their negative outlook for the City of Johannesburg.  

We share the concern relating to the need to strengthen the City’s liquidity, already achieving significant improvements in this regard.

In terms of financial performance, the City has achieved an unqualified audit in 2016/17 financial year, whilst five municipal entities received clean audits.

This is one more entity than in the 2015/16 financial year. We continue to report a moderate liquidity profile and continue to work towards ensuring improved revenue optimisation, whilst also reducing the impact of corruption, so that every cent available to the City is used for service delivery.

In August of this financial year, for the first time in its history, the City achieved a record monthly revenue collections of R3.6 billion, up from R3.1billion in July 2018.

The City is presently ahead of its revenue collections targets for the first quarter of the financial year and is confident that by sustaining these levels we will improve our liquidity position by mid-year.

By contrast, the past administration’s highest average monthly collection reached R2,8 billion.

Added to this, the City continues to make gains through Operation Buya Mthetho which has resulted in collections of R700 million at the end of the reporting period, which has focused on businesses with illegal connections to our services.

The multi-party government inherited debt levels at the maximum of the ceiling prescribed by National Treasury, and managed to settle over R6 Billion in loans which became due in the 2017/18 financial year.

Upon entering office the City was subjected to a loss of just over R1 billion arising from:

- VAT refunds to the extent of R314.5 million have been seized by SARS against the tax dispute with City Power relating to claims for the provision of bad debts under Section 11(j) which is still being disputed by City Power. This query long pre-dated the multi-party government entering office but was acted upon soon after.

- The Department of Energy reneging on a commitment to refund the City for R288 million of expenditure in electrification projects.

- Contractors for major Capital Projects like the Eldorado and Hopefield Sub-Stations, involving over R200 million, for work that was never done. These cases are now subject to a criminal proceeding and a civil claim, but still requiring the City to appoint new contractors to complete these critical projects.

- At the end of January 2017, ESKOM terminated the subsidization of purchase from KELVIN by City Power. The impact on City Power cash flow of this termination of subsidy in 2016/2017 is R267.6 million.

The achievement of various improvements in the City’s financial position represents the continued drive to recover from the inhibitive legacy inherited from the previous administration. We remain confident in the City’s ability to progressively continue making gains in our financial performance.

As a result of efforts by the multi-party coalition government and the City’s continued positive performance, investors’ confidence in the City is set to improve.

Indeed, the recent investment of R2 billion in the inner city by Divercity Urban Property Fund, the largest in the Johannesburg CBD for some years, demonstrates investors’ faith in Johannesburg’s prospects.

This follows a record R8.69 billion of investment attracted by the City in the 2017/18 financial year, almost double the R4.45 billion attracted in the previous financial year.

While the City notes concerns around increased City expenditure, it must be noted that the City operates in an environment of vast infrastructure and social backlogs that our communities require be addressed through capital investment.

The City is required to balance the imperatives of sound financial management alongside the needs of improving the lived experience of our residents, communities and business sector.

The multi-party government’s commitment to strengthen the City’s financial position, and to ensure sufficient expenditure to turn the City’s ailing infrastructure around, take place against the background of a bleak inheritance.

The results being achieved by the multi-party government in just 2 years, following many years of mismanagement, demonstrate that a progressive stabilisation of the City’s financial position will be realised.

Issued by Kutlwano Olifant, Stakeholder Manager, MMC for Finance and Leader of Executive Business, 24 October 2018