PMB: credit rating at eight-year low

2010-11-22 00:00

THE worst credit rating in eight years.

This is what members of the executive committee (Exco) were told about the municipality’s latest credit score at a recent sitting.

A report prepared by an international agency, Global Credit Ratings, said the rating was based on the following:

• The fact that the municipality was placed under administration in February and the suspension of senior managers;

• The sharp decline of key liquidity ratios;

• The use of a short;term loan to bridge operating requirements;

• Significant challenges in terms of the municipality’s debtor’s book, which has put Msunduzi’s cash flow management under immense strain; and

• Exhausted cash holdings, which were under the responsibility of previous management

The agency has graded the municipality’s short-term debt rating scale at A3 level.

This means that its liquidity is satisfactory although there are substantial risk factors.

In terms of its long-term debt, the agency has rated the municipality at BBB level.

This means that while there are sufficient protection factors in place in terms of investments, there is significant unpredictability in risk during economic cycles.

“Notwithstanding the aforementioned, Msunduzi remains one of the largest local authorities in South Africa by total income, which bodes well for its longer-term sustainability,” states the report.

It goes on to say that since May this year, the municipality has not defaulted on any of its interest obligations or debts due to the efforts of the provincial intervention team.

“However, the municipality did roll over a payment to Eskom in February due to the administrator agreeing on an extension with the parastatal [this was, however, paid a month later],” states the report.

DA caucus leader Bill Lambert said the municipality’s reduced credit rating comes as no surprise.

Msunduzi Mayor Mike Tarr said: “The municipality’s credit rating has dropped and if we want to borrow money this doesn’t help.”




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