Announcements Corporate Rating Alerts

GCR affirms West Coast District Municipality’s rating of A(ZA); Outlook Stable

Rating Action

Johannesburg, 29 April 2021 – GCR Ratings (“GCR”) has affirmed West Coast District Municipality’s national scale issuer ratings of A(ZA) and A1(ZA) in the long and short-term respectively, with a Stable Outlook.

Concurrently, GCR has accorded a long-term international scale rating of B+, outlook Stable.

Rated Entity Rating class Rating scale Rating Outlook / Watch
West Coast District Municipality Long Term Issuer National A(ZA) Stable Outlook
Short Term Issuer National A1(ZA) Stable Outlook
Long Term Issuer International B+ Stable Outlook

Rating Rationale

The ratings for West Coast District Municipality (“WCDM, “the District”) are anchored by its robust financial profile, supported by its large net cash position. This notwithstanding, the ratings are constrained by the District’s relatively high reliance on grant income funding.

WCDM has a fairly small population with socio-economic indicators broadly in line with national averages. Positively, economic activity is diverse and includes manufacturing, agricultural and tourism industries, which continue to support the District’s Gross Domestic Product (GDP) growth above the national average. This is reflected in a relatively low unemployment rate of 11%, against the 27% national average. The District continues to seek ways to strengthen economic diversification and growth, albeit that meaningful improvement will only be achieved in the longer term, whilst the COVID-19 pandemic has added some setbacks.

GCR considers district municipalities’ operating structure in South Africa to be an inherent rating weakness, as most, including WCDM, maintain a significant reliance on grant funding, the growth of which is projected to remain low amidst the weak national fiscal position. WCDM’s internally generated income (33% of total revenue) is derived predominantly through the provision of water services. GCR views this positively, as well as efforts to create additional sources of income through developing common infrastructure to be used by the underlying municipalities. As a result of the reliance of grants (which were not reduced during the pandemic) and water sales, the District’s income was largely insulated from the financial effects of the COVID-19 pandemic. Whilst there was some additional expenditure required on protective equipment, this was largely offset by the cessation of all business travel and conferences over that period. That said, the District’s financial performance could be threatened by a reduction in revenue to the underlying municipalities as low-income households and current ratepayers struggle to pay their bills. More significantly, persistent above-inflation increases have seen staff costs rise to account for a high c.55% of expenditure.

GCR takes comfort in the fact that capex implementation has been sustained at a high 90% of budget over the review period, and capex spend is budgeted at R15m over each of the next two financial years. Also adding positively to the assessment is WCDM’S long track record of clean audit outcomes.

WCDM’s strong financial profile contributes favourably to the ratings. The District maintains a conservative financial policy, with debt having amortised steadily over the review period to a low R13m at FY20 (FY19: R27m). The District anticipates raising a small amount of additional debt to fund a landfill project, but it plans to recover this loan from the three participating municipalities. This is not expected to meaningfully impact the strong net ungeared position. GCR does, however, note the limited demonstrated access to external funding, with funding concentrated to DBSA as the majority lender.

Unencumbered cash holdings of R332m (FY19: R307m) supports WCDM’s robust liquidity profile, prompting high unencumbered cash coverage of 343 days in FY20 (FY19: restated to 333 days from 296 days), and generously covers all debt redemption and capex requirements. Despite the projections indicating a decreasing trend in unencumbered cash days on hand in the medium term as more internal cash is used for project implementation, GCR expects liquidity coverage to remain solid.

Outlook Statement

The Stable Outlook reflects GCR’s expectations that, notwithstanding the COVID-19 disruptions and weakness of the national fiscal position, West Coast District Municipality will continue to report ample liquidity to maintain a strong financial profile.

Rating Triggers

West Coast District Municipality’s ratings are at the upper limit for South African District municipalities, with further progression unlikely unless there is a fundamental change in the District’s operating structure. Conversely, negative rating action could arise should the District evidence a marked reduction in government support, or should municipal revenue streams reduce.

Analytical Contacts

Primary analyst Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771
Secondary analyst Lara Krug Senior Analyst: Corporate Ratings
Johannesburg, ZA Larak@GCRratings.com +27 11 784 1771
Committee chair Sheri Morgan Senior Analyst: Corporate Ratings
Johannesburg, ZA Morgan@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Local and Regional Governments, June 2019
GCR’s Country Risk Score report, March 2021
GCR Rating Scales Symbols and Definitions, May 2019

Ratings History

West Coast District Municipality

Rating scale Review Rating class Rating Outlook/Watch Date
Long Term Issuer Initial National A-(ZA) Stable Outlook Dec 2007
Short Term Issuer National A1-(ZA)
Long Term Issuer Last National A(ZA) Stable Outlook August 2020
Short Term Issuer National A1(ZA)

Risk Score Summary

Factors & sub-factors Risk scores
Operating environment 14.00
Country & sector risk score* 14.00
Business profile (4.50)
LRG Profile (3.00)
Operating performance (1.50)
Management & governance 0.00
Financial profile 4.00
Leverage and capital structure 2.00
Liquidity 2.00
Comparative profile 0.00
Government support floor 0.00
Peer analysis 0.00
Total score 13.50

*The country risk score serves as a proxy for sector risk.

Glossary

Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to the rated entity. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

The rated entity participated in the rating process via management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered to be adequate, and has been independently verified where possible. The information received from the rated entity and other reliable third parties to accord the credit ratings included:

  • The latest audited financial results (plus four years of comparative numbers)
  • Budget reports
  • The latest Integrated Development Plan
  • Additional information regarding Debt Maturities as provided by WCDM
image_pdfPDF View


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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.