Ratings upgrade 'affirmation of Joburg's financial sustainability'

Ratings upgrade 'affirmation of Joburg's financial sustainability''If South Africa is to reach higher levels of growth, it will depend on the performance of our city governments' - Finance Minister Pravin Gordhan, in congratulating the City of Joburg on its latest ratings upgrade.

Johannesburg started 2016 on a positive note following a credit rating upgrade from global ratings agency Fitch, bucking the recent trend of gloomy forecasts on South Africa's economy.

The Nelson Mandela Bridge at night'It is a credible endorsement of Johannesburg's financial stability at a time of great uncertainty in the global markets' - Executive Mayor Parks Tau.On 18 December, Fitch upgraded the City of Joburg's national long-term rating and the national senior unsecured ratings on its outstanding bonds from AA- to AA, while affirming the City's long-term local currency rating with the outlook on stable.

Fitch cited Johannesburg's fiscal strength and sustainable debt levels as key drivers for the ratings action, which will result in lower interest repayments on the City's debt and make the City's bonds more attractive to investors.

'A safe and preferred investment destination'

Joburg Executive Mayor Parks Tau said the upgrade was "an affirmation that indeed the City is a safe and preferred destination for investment by investors.

"It is a credible endorsement of Johannesburg's financial stability at a time of great uncertainty in the global markets, rising interest rates and currency fluctuations. The rating is also a reflection of the quality of leadership and their ability to manage an annual budget of more than R50-billion," Mayor Tau said.

"This is a clear reflection of a city that is anchored on transparency, accountability and clean governance, which also justifies our position as an economic hub of South Africa."

In 2004, the City issued a COJ02 credit-enhanced bond that was 40% guaranteed by the International Financing Corporation (IFC) and Development Bank of Southern Africa (DBSA). This resulted in Fitch assigning an AA+ rating, a notch higher than the issuer rating of AA.

The partially guaranteed COJ02 bond still has an outstanding amount of R333-million to be redeemed by September 2016.

R100bn infrastructure programme to boost growth

Fitch also assigned the City a long-term local currency Issuer Default Rating (IDR) to allow it to source funding in the Eurobond Market, and affirmed its local currency IDR at BBB with a stable outlook, reflecting the agency's expectations of the City's low debt over the medium term.

Johannesburg, Fitch noted, is the wealthiest city in South Africa, with an estimated GDP per capita of about 50 percent above the national average of USD6500, and is the country's financial and corporate hub.

"Against a backdrop of national economic slowdown, Fitch expects activity generated by the implementation of the city's R100-billion 10-year investment plan to support the performance of the City of Joburg's economy, and to lead to an average GDP growth of 2% to 3% per annum over the medium term, conducive to an expanding tax base when coupled with a slightly rising population."

Cities 'are engines of economic growth'

National Finance Minister Pravin Gordhan congratulated the City of Joburg on the upgrade, saying in a statement that South Africa, now more than ever, "needs cities that are financially sustainable and able to invest in infrastructure that improves the lives or our people.

"Cities are engines of economic growth," Minister Gordhan said. "If South Africa is to reach higher levels of growth, it will depend on the performance of our city governments. It will be through cities that South Africa can achieve 'inclusive growth', the kind that reduces economic inequality and creates productive economic opportunities for the poor and the vulnerable."