The City of Joburg has hit back at sovereign credit ratings agency Moody’s for the recent downgrades. Picture: Reuters
The City of Joburg has hit back at sovereign credit ratings agency Moody’s for the recent downgrades. Picture: Reuters

Joburg worried about future investment in the city after Moody’s recent downgrade

By Nhlanhla Mbatha Time of article published Jul 23, 2021

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Johannesburg - The City of Joburg has hit back at sovereign credit ratings agency Moody’s for the recent downgrades.

Moody’s last week downgraded five metropolitan municipalities, citing uncertainty in the strength of their revenue collection and increasing financial pressures.

The downgraded metros are the City of Ekurhuleni, the City of Cape Town, the Nelson Mandela Metropolitan Municipality and the City of Joburg.

Ekurhuleni Water Care and the City of uMhlathuze, which is a local municipality that includes Richards Bay, were also included.

This comes after Moody's downgraded the Tshwane Metropolitan Municipality last month, citing liquidity concerns at one of South Africa's richest municipalities.

Credit Ratings Analytics director Saveshen Pillay said: “The rationale for these downgrades are as a result of the operating environment over the last 12 months and the Covid-19 pandemic. The recent unrest in the country is also likely to have knock-on effects for consumer, business and investor confidence.”

Most of the entities were put on review for further downgrades by Moody’s, meaning they could plunge deeper into sub-investment territory should economic conditions worsen, which is likely to be the case.

Joburg spokesperson Nthatisi Modingoane said the city was worried about the process the rating agency followed.

“What normally happens, when ratings are done, the rating agencies interact with us. They request certain information from us, and we supply them. Not to say we want to dictate to them their work,” Modingoane said.

“But this time around we were shocked as a city because the rating agency never consulted with us. We were not notified. No input was required from us.

“They never interacted with us to hear our side of the story in as far as the impact of Covid-19 has on our finance, the measure or plans in place from us to circumvent the impact of Covid-19, and whether we have any cash reserves in our bank account. What they did just surprised and shocked us,” he said.

Modingoane said the city had written to the rating agency and to the national Treasury, expressing their concern about the process followed.

He said had Moody’s engaged with them and accessed and considered the necessary available information, the ratings would be different.

“All they did was to use a blanket approach without going into specifics to different entities. We do not know why,” he said.

“For instance, at the end of the city’s last financial year, June 2020, the city closed its books with a surplus of R5.5 billion. That’s an audited figure which they have in their possession. The closing balance not audited, and we did inform them, for June 2021 has an increase of 7% in terms of what we have in the kitty as an institution.

“What we think might have triggered the speculation was that during the hard lockdown, because we normally put a target for revenue collection to about 90%, so for the year ending 2020 we were 86%, meaning we were 4% short.

“When the lockdown regulations were reviewed, we were able to do credit controls, and at the end of June 2021 the situation started to improve and we were back at 90%. We are seeing the results of our interventions, and that is not reflected in the picture that the agency is painting,” he said.

Modingoane said the city was worried about future investment.

“We have a number of investors who have a huge interest in the city. The city has a huge tax base to generate revenues through a variety of means when we provide services to our customers,” he said.

Asked about the impact of the downgrade, Modingoane said the ratings impacted the budget of the city.

“When we put together the midterm budget we look at our cash reserves, and the amount of money we are likely to borrow in terms of investing in the bulk infrastructure of infrastructure upgrades. So, if investors see the city as not a viable or safe investment vehicle, they might desert us. We do not need that,” he said.

Modingoane said the agency had responded that it would be coming back to the city to do a thorough assessment.

“We await that. We expect a rating that reflects a true picture of the state of finances in the City of Joburg,” he said.

The Star

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