By Lehlohonolo Lehana.
Moody’s Investors Service on Wednesday downgraded the City of Ekurhuleni (COE) credit ratings further into ‘junk’ status in the wake of the metro’s worsening financial position.
The rating agency lowered Ekurhuleni’s long-term issuer (domestic) and senior unsecured ratings to Caa2 from Caa1 and its baseline credit assessment (BCA) to caa2 from caa1. Caa2 is eight notches into non-investment grade or junk status in terms of Moody’s rating.
It also placed Ekurhuleni’s ratings and BCA on review for further downgrade, together with putting the City of Tshwane’s ratings on review for a downgrade. Tshwane currently has a Caa2 long-term issuer rating.
Moody’s said this was largely due to the municipality failing to submit its audited financial statements to the Johannesburg Stock Exchange (JSE) within the 29 February deadline.
In the report, it was also stated that the decision to place the ratings of Ekurhuleni on review for further downgrade reflects the increased risk of debt acceleration and potential default of the city on their notes listed on the JSE.
“Moody’s understands that the failure to submit the financial statements to JSE by the deadline leads to a phase where the city will start a dialogue with JSE to present their line of defence and indicate the date for the submission of their audited accounts.
“The CoE stated that it will be in a position to submit financial statements by March 31.”
Moody’s noted the downgrade for the CoE’s ratings reflects the increased risk of default amid weakening governance and management practices.
The City of Ekurhuleni has called the rating unsolicited.
In a statement, the city says it does not have a formal evaluation agreement with Moody’s, however, this is not a requirement for rating agencies to evaluate a government entity.
Ekurhuleni Finance MMC Nkululeko Dunga said people should wait for the city’s officially designated rating agency.
“The city’s financial integrity remains extremely sound and we further urge our stakeholders to focus on forthcoming reviews by our officially designated rating agencies.”
This follows a public spat with the AGSA, during which the city claimed that the national audit office had delayed the release of the metro’s 2022-23 audit report.
The metro will now table the report at an upcoming council meeting before releasing it to the public.
Dunga said the city will also consider taking legal options to claim for reputation damage caused by the unsolicited Moody’s review.