GCR has reaffirmed Ekurhuleni Metropolitan Municipality’s (“Ekurhuleni”) domestic ZAR currency credit ratings of AA- (double A minus) and A1 (single A1) in the long and short term respectively. The ratings, have, however been placed on rating watch. Ekurhuleni is one of six Category A (or metropolitan) municipalities in the country. The metro covers an estimated area of around 2,000 km2, and has a population of over 2.6 million. Ekurhuleni is one of the country’s major manufacturing areas, housing O.R Tambo International Airport, and a well developed transport infrastructure that links the area to the rest of South Africa, and internationally.
Following a period of relatively modest debt levels, Ekurhuleni has utilised increasing levels of borrowings to support its expansive capex programme in recent years. In this respect, gross gearing rose to 20% at FYE10, compared to 11% at FYE08. An analysis of total debt at FYE10 reveals that around 69% of the metro’s debt is redeemable in over 5 years, with the largest outstanding loan redeemable in 2018. Note is also taken of the fact that Ekurhuleni has a R2.4bn draw down facility with ABSA (redeemable in 15 years), with R800m having been utilised as at FYE10. Approximately half of capex spend over the next two years is budgeted to be funded from new borrowings. Given the aforementioned, gearing metrics are expected to continue their upward trend, with budgets indicating gross gearing to peak at 24% at FYE12. Notwithstanding this, relative debt levels are below the metro’s peers and are deemed manageable.
Cognisance was also taken of the consistently sharp decline in cash holdings in recent years, with the metro reporting a notable weakening in key liquidity ratios for the corresponding period. Further, comparably weak payment levels, which has resulted in ongoing large working capital absorptions presents a key challenge. This risk is exacerbated by relatively high tariff increases that are being passed onto consumers, which may worsen collection efficiency of an already long dated debtors book.
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.
These cookies are necessary for the website to function and cannot be switched off in our systems. They are normally set in response to actions made by you, amounting to a request for services, such as setting your privacy preferences, logging-in or completing forms. You can set your browser to block or alert you about these cookies, but please note that parts of the website may no longer function correctly. Note: These cookies do not store any personally identifiable information.
These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors navigate the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies, the site will not be performance optimised for your use.