Johannesburg, 31 May 2013 — Global Credit Ratings has today upgraded the long term national scale and upgraded the short term national scale issuer ratings of uThungulu District Municipality to A(ZA) and A1(ZA) respectively; with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on uThungulu District Municipality based on the following key criteria:
The rating of uThungulu is premised upon its robust financial position, with the district demonstrating a high level of solvency and low gearing. In this latter regard, the district has not raised any new debt in recent years, whilst existing borrowings have continued to amortise. This financial strength is further borne out in the high level of cash holdings, even excluding encumbered near cash investments, with days cash on hand covering nearly a year’s worth of expenses.
Simultaneous to the improvements in solvency have been sustained rises in income. Although the majority of income derives from provincial and state government grants, this is a factor inherent to district municipalities, whose mandates are typically for infrastructure maintenance and development. Further comfort in this latter regard is derived from the medium term budgets of national government, which indicate sustained (and in fact rising) levels of financial support from the government to uThungulu. Note is taken of the high proportion of indigents within the jurisdiction who are dependant upon uThungulu for basic water and sanitisation services, providing further reason for ongoing government support. With numerous infrastructure projects underway and in the pipeline, no reductions in government funding are forseeable in the medium term.
Looking ahead, development of internally generated revenue sources by UDM would serve to diversify the earnings base and reduce dependence upon government, and thus bode positively from a credit risk perspective. If accompanied by low levels of debt and robust liquidity, this could
have a positive bearing on the ratings accorded to the district over the medium term.
Conversely, a material negative change to the level of government funding received would have dire consequences for UDM, rendering it unable to meet its service delivery commitments. Should this latter occurrence or other factors precipitate significant increases in debt financing, this would too have a negative bearing on the district’s credit risk profile.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Dec/2006)
Long term: A-(ZA); Short term: A1(ZA)
Last rating (Jun/2012)
Long term: A-(ZA); Short term: A1-(ZA)
Outlook: Positive outlook
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Sector Head: Corporates
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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 be ingrated; 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.
uThungulu District Municipality participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to uThungulu District Municipality with no contestation of the rating.
The information received from uThungulu District Municipality 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 Integrated Development Plan, most recent year to date accounts and other publicly available documentation as required by the Municipal Finance Management Act No. 56 of 2003.
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