Moody's lowers long-term rating of Johannesburg

MOODY'S Investors Service announced today it has lowered the long-term national scale issuer rating of City of Johannesburg to Aa3.za from Aa2.za. The rating outlook remains stable.

The rating action reflects the impact of the deteriorating liquidity position of Johannesburg and its already high level of gearing.

Moody's notes that the liquidity pressures were caused by the current credit crisis and economic recession coupled with the massive spending on infrastructure over the last couple of years.

Johannesburg invested R5.7bn in infrastructure and new assets during the 2009 fiscal year compared with R4.2bn in 2008.

"Furthermore service delivery complaints seem to be on the increase and higher expenditures have eroded the city's cash position," said Moody's.

Johannesburg's long-term debt burden is the highest of the metros at 53% of its operating revenue in 2009 if the one off rental income of R2.2bn is excluded from revenue.

The city's medium term budget indicates continued infrastructure spending and borrowing over the next three years that should keep its debt to operating revenue ratio well above the average for the South African metros. Recent short-term commercial paper issues of R1,6bn have provided some short-term liquidity relief.

Overall the financial metrics of Johannesburg has weakened.

"Today's rating action reflects the challenges faced by the city and our view that the liquidity pressures would remain over the short to medium term. Moody's will monitor Johannesburg's liquidity and cash flow situation closely and analyse its financial position in order to assess the extent of the liquidity pressure weighing on its financial fundamentals."

"The stable rating outlook reflects our expectation that Johannesburg will be able to deal with the fiscal challenges associated to a deteriorating liquidity position and the constraints posed by its high gearing. Over the medium term, Johannesburg's credit profile continues to be supported by its large and diversified economic base, and by its pivotal role in the national economy," says Moody's.