Johannesburg, 15 Oct 2014 — Global Credit Ratings has today affirmed the national scale ratings assigned to Nkangala District Municipality of A(ZA) and A1(ZA) in the long term and short term respectively; with the outlook accorded as Stable. Furthermore, Global Credit Ratings has affirmed the international scale rating assigned to Nkangala District Municipality of BBB-; with the outlook accorded as Negative.
However, as the rating agreement with GCR has not been renewed, the ratings accorded to Nkangala District Municipality have subsequently been withdrawn.
SUMMARY RATING RATIONALE
Global Credit Ratings has affirmed the above credit rating(s) of Nkangala District Municipality (“NDM”) based on the following key criteria:
NDM is dependent upon national government grant funding to meet its operational and capex requirements. As grant receipts are committed by government for three years, this provides strong certainty of revenue over the medium term. Nonetheless, note is taken of rising central government expenditure and indebtedness, which could negatively impact NDM’s grant receipts over the long term. NDM’s income rose to R323m in F14 (F13: R308m). However, the municipality reported a third consecutive net deficit in F14, on the back of rising expenses, particularly grants and subsidies paid.
As NDM does not provide any trading services, its debtor’s book has been negligible over the review period. Further to this, NDM reports a small quantum of debt (R36m), arising from historical transactions, and thus gross gearing registered at a review period low of 11% at FYE14.
The district has reported a strong net cash position over the review period, with gross cash holdings of R402m at FYE14. Thus, liquidity metrics have remained sound, with cash on hand reported at 287 days (FYE13: 398 days) and the current ratio at 9x (FYE13: 12x).
|NATIONAL SCALE RATINGS HISTORY||INTERNATIONAL SCALE RATINGS HISTORY|
|Initial rating/last rating (Sep/2013)||Initial rating/last rating (Sep/2013)|
|Long term: A(ZA); Short term: A1(ZA)||Long term: BBB-|
|Outlook: Stable||Outlook: Stable|
Sector Head: Corporate & Public Sector Debt Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
RATING LIMITATIONS AND DISCLAIMERS
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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.
Nkangala District 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 Nkangala District Municipality.
The information used to accord the credit rating included the 2014 annual financial statements (plus four years of comparative numbers) 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
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.
A measure of a company’s ability to meet its short-term liabilities and is calculated by dividing current assets by current liabilities. Current assets are made up of cash and cash equivalents (‘near cash’), accounts receivable and inventory, while current liabilities are the sum of short-term loans and accounts payable.
The risk that a company may not be able to take or meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets.
GCR affirms Nkangala District Municipality’s rating of A(ZA); and concurrently withdraws ratings