City of Johannesburg Metropolitan Municipality reaffirmed at A
GCR has reaffirmed the City of Johannesburg Metropolitan Municipality’s (“CJMM”) long and short term domestic ZAR currency credit ratings at A (single A) and A1- (single A one minus) respectively. Additionally, the rating has been placed on rating watch.
The rating is supported by Johannesburg’s status and importance as South Africa’s economic hub, and the local economy’s significant contribution towards national GDP. Note was also taken of the metro’s robust cash generating ability, albeit largely supported by operating and capital grants.
This notwithstanding, following ongoing substantial capex spend the metro has evidenced successive increases in net debt over the review period. In this regard, total interest bearing borrowings increased by 6% to R11.2bn in F10. Furthermore, additional borrowings are budgeted to fund a large component of infrastructural spend going forward. Accordingly, key gearing ratios are expected to remain high in the medium term. In addition, note was taken of the significantly lower level of cash holdings in F09 and F10, which saw days cash on hand reported at a nominal 6 days in F10 (F09: 8 days). Moreover, if unspent conditional grants are removed from cash, the metro displays a negative cash position. This, in turn, has placed pressure on the metro’s key liquidity ratios, which have weakened substantially to a level well below industry norms. Cognisance was, however, taken of the fact that council has ring-fenced investment funds for the repayment of future debt obligations, which serves to mitigate credit risk somewhat.
It was also noted that although net debtors decreased by 4% to R3.7bn in F10, amounting to 23% of trading income (F09: 29%), the continued high tariff increases that are being passed onto consumers may exacerbate collection inefficiency of an already long dated debtors book in the medium term.
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