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Moody’s downgrades City of Ekurhuleni

Ekurhuleni’s Non-Prime (NP) short-term issuer rating and NSR short-term issuer rating of Non-Prime (NP.za) were affirmed.

Moody’s has downgraded the City of Ekurhuleni (CoE) following the city’s failure to submit audited financial statements to the Johannesburg Stock Exchange (JSE) by the deadline of February 29.

The deadline lapsed seven months after the financial year-end on June 30, 2023.

The CoE has since responded that it rejects the rating’s downgrade.

According to Moody’s, the CoE’s senior unsecured ratings were downgraded to Caa2 from Caa1, its baseline credit assessment (BCA) to caa2 from caa1, and placed these ratings and BCA on review for further downgrade.

Moodys downgraded Ekurhuleni’s National Scale issuer and debt ratings (NSR) to B3.za from B2.za and placed them on review for further downgrade.

Ekurhuleni’s Non-Prime (NP) short-term issuer rating and NSR short-term issuer rating of Non-Prime (NP.za) were affirmed.

The JSE announced on February 1 that the CoE’s listing of debt securities and the registration of their program memoranda would be suspended if they failed to submit their audited financial statements by this deadline, as stipulated in the JSE’s debt listings requirements.

“Although the timing of a potential suspension and the subsequent delisting of the notes is uncertain, in Moody’s view the failure of the two cities to submit their audited financial statements has increased the risk of a debt acceleration should a de-listing occur and of potential defaults ultimately, given their weak liquidity position,” stated the Moody’s report.

The Report:

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.”

In the report released today, Moody’s noted the downgrade for the CoE’s ratings reflects the increased risk of default amid weakening governance and management practices.

“This is reflected in the city’s delay in tabling its financial statements to the city council, following a dispute with the Auditor General.

“Moody’s estimates that the city’s gross operating balance remained low in 2023, due to an increase of bulk purchase expenditure for electricity and water and difficulties to recover revenues from consumers amid load shedding and continued water shortages.”

CoE comments:

The spokesperson for the City of Ekurhuleni, Zweli Dlamini, said the city firmly rejects Moody’s unsolicited rating downgrade.

“The city would like to state on record that we have no formal agreement with Moody’s Investment Services for such evaluations.

“Our financial integrity remains sound, and we urge our stakeholders to focus on forthcoming reviews by our officially designated rating agency, scheduled after our annual financial statement release,” he said.

“Furthermore, the city wishes to inform the public that we have officially received the Auditor General’s report on February 29.

“This report is set to be tabled at the upcoming council meeting, after which it will be released to the public.

“We remain committed to transparent and responsible financial management, ensuring continued quality service delivery and development in Ekurhuleni.

“The city is considering its legal options to claim for reputational damage caused by the unsolicited review,” said Dlamini.

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