By Thomas Thale
INTERNATIONAL rating agency, Fitch Ratings, on Thursday announced it had revised the City of Johannesburg's national rating outlook from stable to positive and upgraded the national short-term rating from 'F2(zaf)' to 'F1(zaf)'.
The national long-term rating was affirmed at 'A- (zaf)'.
In a statement, Fitch said it undertook the revision in recognition of the improved financial standing of the City. "Income streams have stabilised with indications of improved collection rates," said the statement, noting that the City's collection levels have increased to an overall rate of 91 percent, a marked improvement from the 85 percent recorded in the previous financial year.
Fitch Ratings is one of only three international agencies which provide an opinion on the ability of an entity or of a securities issue to meet financial commitments, such as interest, preferred dividends, or repayment of principal debt, on a timely basis.
The agency said its revision of the City's short-term rating "results from an improvement in liquidity and working capital management. Its capital budget for the financial year 2005 projects that nearly 63 percent will be funded from own sources and grants".
City Treasurer, Jason Ngobeni, hailed the improved rating as an overdue recognition of the City's improved liquidity and financial stability. "It's about time that our short term rating is upgraded. That rating was assigned in 1999, when we were in the red on our short-term liquidity. At the time, we had an outstanding short-term debt of R500-million in the form of call bonds.
"Now our cash balance is over R500-million positive. We will continue to maintain cash balances of between R5-million and R8-million on a month-to-month basis."
Ngobeni expressed confidence that the new rating will improve the City's overall outlook and increase the likelihood of the long-term rating being upgraded as well.
Fitch acknowledged that the City's improved budgetary performance and planning bode well for its long-term rating.
Among the improvements noted by Fitch are the City's prudent approach in making provision for bad debt, improved operations leading to the implementation of 90 percent of the 2003/4 capital budget, and the City's investment programme, which has been well received by investors.
Fitch said the City's recent bond issues have improved its debt profile "as expensive debt was refinanced, lessening interest charges".
Fitch also came out in support of the City's proposed partial sale of its consumer debtors' book amounting to R2.5-billion. "Fitch regards the proposed sale as positive since proceeds can be used for capital expenditure without incurring additional debt."
The ratings agency noted that the City's revenue, billing, accounting and collection systems will require constant attention from the council. "Fitch will closely monitor the expected improvement in revenue billings and collections and infrastructure upgrading," said the statement.
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