Ratings agency places City of Johannesburg on negative outlook
SA’s largest city has been grappling with a billing and revenue-collection crisis
GCR Ratings has placed the City of Johannesburg’s credit rating on a negative outlook, citing concerns about the city’s liquidity position.
SA’s largest city, which accounts for about 15% of the country’s economy, has been grappling with a billing and revenue-collection crisis. Earlier this week, it scrapped a plan to charge stiff pre-paid electricity tariffs following a public outcry.
It had planned to charge a fixed surcharge of R200 a month for pre-paid residential and R402 per month for pre-paid business customers for 2019/2020.
GCR said in a statement that the metro is still grappling with “persistent high gearing and weak liquidity”.
The ratings agency kept the metro’s long- and short-term ratings unchanged at AA(ZA) and A1+(ZA), respectively.
The agency said the city’s operating performance has been dented by persistent debt-collection “challenges”, which have reduced cash flows available for service delivery and projects.
“Counterbalancing the metro’s strength is the very high debt of R20.1bn [for] financial year 2018 and relatively weak gearing metrics,” the agency said.
While net debt to income was moderate at 33.8%, cash flow-based metrics were weaker.
“Liquidity is a rating weakness, as the City of Johannesburg’s cash holdings have trended downwards since financial year 2014 due to persistent working-capital absorptions.”
As a result, cash holdings declined to R2.2bn. While they will probably increase in the current year, this is likely to be offset by a similar increase in debt.
In response, the metro said on Friday it had seen “significant improvement in the liquidity level” after recently putting in place “strict credit control processes”, reducing “uncollectable” debt, increasing the use of online services, and continuing a process to verify electricity and water meters across the city.