The “associated with the ongoing governance and operational shortfalls” that could limit eThekwini Municipality’s ability to deliver infrastructure and services has been flagged by a ratings agency, leading to the city being given a negative credit outlook.
The municipality confirmed this following the tabling of a report detailing a negative credit outlook for the city.
A report on the city's financial matters and investments was tabled in a council meeting last week and revealed that the city now had a negative credit outlook.
It revealed that another contributing factor was the introduction of the Section 154 intervention and how that has been handled.
Section 154 refers to the bringing in of experts to assist the metro in addressing some of its challenges.
In response to questions regarding the negative credit outlook, the metro, in a statement, stated that it continued to be in good financial health.
“eThekwini Municipality holds an investment grade credit rating, the highest among all metros in South Africa.”
Speaking on the source of the negative outlook, the city said: “In the case of eThekwini Municipality, the negative outlook, according to the rating agency, reflects the risk that the ongoing governance and operational shortfalls could limit its ability to deliver infrastructure and services to residents.
“However, the credit rating agency does acknowledge that, ‘not notwithstanding, the ratings continue to factor in the Metro’s strategic positioning as an important economic centre, history of balanced budgets and conservative leverage profile’.”
On the issue of Section 154 being raised as a contributing factor to the negative outlook, the city said there had been a lot of negative publicity in the media with regards to “how the Section 154 support will be implemented, its outcomes and possibly a misinterpretation of what Section 154 means”.
The Metro said in terms of its finances it remained in good financial standing.
It said it currently owes R10 billion to financial institutions, with the repayment profile made up of R1bn in interest.
“The City is generating adequate revenue to service the debt obligations, in addition to the interest made on investments.”
On the concern that the negative outlook might affect future borrowings, the City said: “Generally, lenders do place some reliance on the credit rating, which is provided by a credit rating agency in addition to their own internal credit reviews. A negative outlook may, to some extent, signal an increase in risk in lending to that particular entity, which will then be reflected in the higher interest rate that a lender may offer the City.
“The negative outlook will affect future borrowings. However, the City is in continuous engagement with lenders in terms of responding to any concerns that may arise. More critically, notwithstanding the negative outlook, the City is in good financial standing,” it said.
DA councillor Rory Macpherson said: "Despite eThekwini Municipality having investments to the value of R9.4 billion, it now has a negative credit outlook as a direct result of the introduction of a Section 154 (intervention). The interest to service the loans exceeds the income we get from what the municipality invested.
“Whilst Section 154 is welcomed, it is self-inflicted by the ANC leadership, its alliance partners and the city manager. The DA is hopeful that this long overdue intervention mechanism by a team of appointed professionals will assist the municipality in implementing turnaround strategies.
“The notion of simply borrowing billions in loans to fund infrastructure developments, maintenance and service delivery instead of growing our rate base and collecting debt has been highlighted as a major concern. The report confirms that borrowings must be reduced and replaced with generated revenue. This is a win for the hard-pressed ratepayers who end up servicing these massive loan debts.”
The Mercury