How Moody’s Evaluates Johannesburg’s Financial Outlook After Its Assessment

The ratings agency Moody’s has decided against downgrading South Africa’s economic hub’s credit rating, instead confirming a positive outlook.

A review of the credit rating for the municipality of Johannesburg began in April, with Moody’s keeping the rating at its existing levels last week.

Listen/read:
Major businesses vow to support the City of Joburg
Treasury warns of potential cuts to City of Joburg funding

Both Johannesburg Mayor Dada Morero and City Manager Floyd Brink welcomed the news on Friday, viewing it as a vote of confidence in the current leadership.

Moody’s confirmed that the municipality’s long-term issuer rating remains at Ba3, while its national-scale and short-term national-scale ratings stand at A1 and P-1, respectively.

Johannesburg has a Not Prime short-term issuer rating, paired with a positive outlook.

Moody’s rating and definitions document elaborates on the meanings associated with these ratings.

P-1 issuers, classified as Prime-1, demonstrate “a superior ability to meet short-term debt obligations”.

“Entities rated A exhibit above-average creditworthiness relative to other domestic issuers,” the document notes.

“Obligations rated Ba are considered speculative and present significant credit risk, with the modifier 3 indicating a position within the lower range of that rating category,” according to Moody’s explanation.

Not Prime issuers, or those labeled Not Prime, “are not classified within any of the prime rating categories”.

‘Improvements remain a priority’

The municipality’s credit rating review was prompted by delays in finalizing audited financial statements, leading to the suspension of municipal debt instruments by the Johannesburg Stock Exchange (JSE).

The JSE lifted the suspension in May after receiving an unqualified audit opinion from the Auditor-General of South Africa (AG) regarding the municipality’s financial statements.

Read:

Johannesburg faces R2.1bn funding shortfall as debts rise

Johannesburg is not destitute, but poorly managed
Concerns over Johannesburg’s collapse spark calls for state intervention

“Moody’s noted that the city consistently met its debt obligations during the suspension, paying R159.1 million in principal and R272.2 million in interest,” stated Morero’s office on Sunday.

The city suggested that Moody’s may consider upgrading its rating if the municipality addresses its budgeting deficits and resolves financial irregularities pointed out by the AG.

“Moody’s rating action also underlines ongoing concerns about the City’s governance controls and liquidity, which the administration fully acknowledges,” stated the mayor’s office.

Read:
CoJ finances ‘a horror show’ – Scopa member
Businesses caution that Joburg crisis endangers South African recovery

City Manager Floyd Brink remarked that the announcement indicates the municipality’s resilience.

“While we recognize that governance improvements are vital, this outcome confirms that the city is financially stable, fulfills its obligations, and is enacting reforms to bolster investor confidence and enhance service delivery,” Brink stated.

This article was first published here.