Moody’s has withdrawn the ratings of two South African cities, Ekurhuleni and Mangaung, in a move likely to unsettle investors who rely on rating agencies’ ratings to make informed decisions.
Moody’s, which is among the world’s top three rating agencies alongside S&P and Fitch, cited “business reasons” for its decision to no longer rate the two metros.
Rating agencies usually withdraw ratings for business reasons when they lack sufficient information to maintain the rating.
Credit ratings for metropolitan municipalities, the economic engines of the country, are critical independent evaluations of a city’s financial health, determining their ability to repay debt and manage financial obligations.
The City of Ekurhuleni appeared to be unfazed by Moody’s decision.
“Moody’s has indicated the withdrawal of the ratings was undertaken for its own business reasons and the ratings in question were unsolicited, meaning they were issued without the participation of the city,” said Ekurhuleni communications head Phakamile Mbengashe.
“The city will continue to work and engage constructively with financial stakeholders and the broader investment community to ensure transparency and maintain confidence in the city’s financial management practices.”
Mangaung city manager Sello More said the Moody’s decision was not a reflection of how the city was run.
“At the date of the withdrawal, the city’s rating projected a stable outlook. Due to the importance of credit ratings, the city is considering appointing an accredited credit rating agency in the country to inform its budgeting and investment strategies,” More said.
Moody’s states the agency may withdraw a credit rating due to “incorrect, insufficient, or otherwise inadequate information”.
Other reasons include bankruptcy/liquidation/debt restructuring/write-down of a structured finance security and reorganisation, among others.
President Cyril Ramaphosa noted last week the recent budget tabled by finance minister Enoch Godongwana acknowledges the dire financial distress many municipalities are in, driven by weak revenue collection, poor management and substantial service delivery backlogs.
“Many municipalities are not spending appropriately. For several years, water and electricity revenue has not been invested in infrastructure maintenance or expansion but has been redirected to cover other municipal costs,“ the president said.
“Local government finances have to be placed on a more sustainable footing to support the delivery of basic services. Over the medium term, R19.2bn will be reallocated to the reform of electricity, water, sanitation and solid waste trading services in metros. These allocations will be linked to performance against clear targets.”
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