Announcements

GCR affirms Mangaung Metropolitan Municipality rating of BBB+(ZA) and concurrently withdraws the rat

Johannesburg, 29 Aug 2014 — Global Credit Ratings has today affirmed the national scale ratings assigned to Mangaung Metropolitan Municipality of BBB+(ZA) and A2(ZA) in the long term and short term respectively; with the outlook maintained as Positive.

However, as the rating agreement with GCR has been terminated, the ratings accorded to Mangaung Metropolitan Municipality have subsequently been withdrawn.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Mangaung Local Municipality based on the following key criteria:

Mangaung Metropolitan Municipality (“MMM”) has reported strong growth in total income over the review period. While the change in status to metro has seen grant funding increase, the stronger growth has been in internally generated income, most significantly trading services. Expenditure has been well contained, rising at a slower rate than income and below budget, resulting in rising operational surpluses.

Despite efforts to improve collections, net debtors have increased as a percentage of income to 28.8% at FYE14 (FYE13: 18.6%). This worsening debtors profile was also borne out in the increase in the debtor’s collection period to 162 days, from 81 days previously.

Debt increased to R365m at FYE13 (FYE12: R68m), as additional facilities were raised from DBSA for infrastructure projects and MMM’s housing development company raised funding for new projects. Nevertheless, debt to total income peaked at a low 8% and has since decreased to 3.6% as certain facilities were repaid by FYE14.

MMM’s liquidity position has improved over the review period, with cash holdings increasing to R633.3m at FYE14. While day’s cash on hand fell to 52 days at FYE14 (FYE13: 60 days), it was still above historical levels. However, cognisance is taken of a large portion of cash restricted to conditional grant funding, as well as a large unfunded staff pension and medical liability.

NATIONAL SCALE RATINGS HISTORY

Initial rating (Nov/2001)
Long term: BBB+(ZA); Short term: A2(ZA)
Outlook: Stable

Last rating (April/2013)
Long term: BBB+(ZA); Short term: A2(ZA)
Outlook: Positive

ANALYTICAL CONTACTS

Primary Analyst
Farai Mauchaza
Junior Analyst
(011) 784-1771
Faraim@globalratings.net

Secondary Analyst
Eyal Shevel
Sector Head: Corporate & Public Sector Debt Ratings
(011) 784-1771
Shevel@globalratings.net

Committee Chairperson
Dirk Greeff
Sector Head: Financial Institutions
(011) 784-1771
Dgreeff@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Public Entities, updated April 2014
Mangaung Metropolitan Municipality rating reports (2001-2013)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Mangaung Local Municipality did not participate in the rating process, though GCR is satisfied that the public information available was sufficient.

The credit rating/s has not been disclosed to Mangaung Local Municipality.

The information used to accord the credit rating included the 2013 audited annual financial statements (plus four years of comparative numbers), managerial accounts for the twelve months to June 2014, the integrated development plan and other publicly available documentation as required by the Municipal Finance Management Act No. 56 of 2003.

The ratings above were not solicited by, or on behalf of, the rated client, and therefore, GCR has not been compensated for the provision of the ratings.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY

Cash Flow

The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.

Credit Risk

The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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