How Moody’s rates Joburg’s financial outlook after its review

Ratings agency Moody’s will not be downgrading the credit rating of South Africa’s economic engine, instead confirming a positive outlook.

A review of the Johannesburg municipality’s credit rating was initiated in April, with the agency last week leaving the rating at pre-review levels.

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Johannesburg mayor Dada Morero and city manager Floyd Brink both celebrated Friday’s announcement, declaring it a vote of confidence in the current administration.

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

Johannesburg’s short-term issuer rating stands at Not Prime, while the outlook is listed as Positive.

Moody’s rating and definitions document explains the meaning behind the ratings.

P-1 issuers, or supporting institutions rated Prime-1, have “a superior ability to repay short-term debt obligations”.

“Issuers or issues rated A present above-average creditworthiness relative to other domestic issuers.

“Obligations rated Ba are judged to be speculative and are subject to substantial credit risk. The modifier 3 indicates a ranking in the lower end of that generic rating category,” Moody’s explains.

Not Prime issuers, or supporting institutions rated Not Prime, “do not fall within any of the prime rating categories”.

‘Improvements remain a priority’

The review of the municipality’s credit rating was the result of a delay in producing audited financial statements and the subsequent suspension of municipal debt instruments by the Johannesburg Stock Exchange (JSE).

The JSE lifted the suspension in May after the municipality’s financials received an unqualified audit opinion by the Auditor-General of South Africa (AG).

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“Moody’s noted that the city continued to meet its debt obligations in full and on time throughout the suspension period, servicing R159.1 million in principal and R272.2 million in interest,” Morero’s office stated on Sunday.

The city relayed that Moody’s would consider upgrading the rating if the municipality addressed its budgeting shortfalls and the financial irregularities highlighted by the AG.

“Moody’s rating action also flags ongoing concerns over the City’s internal governance controls and cash liquidity, and the administration accepts that assessment in full,” stated the mayor’s office.

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City Manager Floyd Brink said the announcement was an endorsement of municipality’s resilience.

“While we recognise that governance improvements remain a priority, this outcome confirms that the city is financially stable, honours its commitments, and is implementing reforms to strengthen investor confidence and improve service delivery,” stated Brink.

This article was first published here.