Johannesburg, 29 Aug 2013 — Global Credit Ratings has today Affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to Municipal Council of Mbabane of BBB+(SW) and A2(SW) respectively; with the outlook accorded as Stable. The rating(s) are valid until 8/2014.
Global Credit Ratings has accorded the above credit rating(s) on Municipal Council of Mbabane based on the following key criteria:
Mbabane is the capital of Swaziland and houses most of central government. Accordingly, it is a key hub of the country’s economic activity. The municipality’s revenue derives mainly from the annual assessment rates that it charges on government and private property, whilst government support consists of small operational grants and larger ones earmarked for capital expenditure.
Central government finances have been under strain and the municipality is in the process of restructuring its operations to ensure its financial sustainability. Initiatives have included a moratorium on wage increases, reducing staff numbers and increased outsourcing of operational functions. This notwithstanding, Mbabane reports a robustly solvent financial position, with just E7.8m of debt reported as compared to equity of E513m. Moreover, the past year has seen a doubling of cash reserves to E68m, boosted by the settlement of unpaid rates accounts by government. The municipality is resultantly in a large net cash position and liquidity is very high, with 398 days cash on hand and a 10x current ratio.
Despite reductions, staff expenditure remains unduly high at 44% of the total in F13. While the abovementioned initiatives are expected to reduce this, concern exists that cheaper outsourced solutions may ultimately prove to be more expensive and create a dependency on third-party contractors. Other concerns centre around backlogged capital expenditure, as Mbabane continues to spend moderately in terms of capex, despite ageing infrastructure. While increased capex is planned for the next 3 years, this is contingent upon the receipt of grant funding from government and the World Bank.
Mbabane’s ratings are constrained by its small size and the limited scope of its operational activities. As such, ratings upgrades are only likely over the medium to long term, and would be predicated on improved economic conditions in Swaziland and growth of the municipality’s rates base. Conversely, Mbabane’s unfunded capex spend is massive relative to its earnings base, and will be highly reliant on funding support of government. A reduction in this support or an increase in the capex that Mbabane itself is required to fund could drive increased borrowings and/or a depletion of cash reserves. This would increase credit risk and could place downward pressure on the ratings.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (May/2000)|
|Long term: A(SW); Short term: A1(SW)|
|Last rating (Jul/2012)|
|Long term: BBB+(SW); Short term: A2(SW)|
|+27 11 784 1771|
|Sector Head: Corporates|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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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.
Municipal Council of Mbabane participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Municipal Council of Mbabane with no contestation of the rating.
The information received from Municipal Council of Mbabane and other reliable third parties to accord the credit rating included the latest audited annual financial statements (plus four years of comparative numbers), budget reports, the Capital improvement Programme 2013/2014-2015/2016FY, the operating budget, most recent year to date accounts and other publicly available documentation.