Herman Mashaba to update public after bad news on Joburg’s credit rating
GCR Ratings puts rating on negative outlook, citing concerns about the city’s liquidity position
Johannesburg mayor Herman Mashaba says he will provide details on the city’s “improving” finances this week in the wake of the decision by GCR Ratings to place the city’s credit rating on a negative outlook, citing concerns about its liquidity position.
“Actually on Thursday morning I had a meeting with my team, I need to release the statement on our finances [on Monday] or on Tuesday,” Mashaba said.
SA’s largest city, which accounts for about 15% of the country’s economy, has been grappling with a billing and revenue collection crisis. Fixing the crisis was a key campaign promise of Mashaba, who took over the reins of a minority DA-led coalition government after the 2016 local government election.
Earlier last week it scrapped a plan to charge stiff prepaid electricity tariffs following a public outcry. It had planned to charge a fixed surcharge of R200 a month for prepaid residential and R402 per month for prepaid 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 absorption.”
As a result, cash holdings declined to R2.2bn. Though they will probably increase in the current year, this is likely to be offset by a similar increase in debt.
Though Mashaba referred questions about the credit rating to the member of the mayoral committee for finance, Funzela Ngobeni, he said the city was making “massive strides” in resolving the billing crisis.
Business Day sent detailed questions on the ratings decision to Ngobeni’s office. It said it would only be able to respond on Monday.
Johannesburg ANC caucus leader Geoff Makhubo said the ratings decision was not “unexpected”.
“The city is going through a severe cash crunch and we don’t see a turnaround in the near future because collections are low, the debt levels are high and the tariff increases are high.”
Makhubo said the ANC expected a downgrade in the near future. He said part of the reason for the low debt collection levels was that customers were struggling to pay. “They must have reasonable tariff increases, the people must use less, we must reduce costs so that we can balance the books. We need to just improve financial prudence, that’s all,” said Makhubo.