Moody's SA rating spills over to municipal outlooks - except for Cape Town

Cape Town - Moody's Investors Service on Wednesday confirmed the long-term global scale ratings of 10 South African regional and local governments with stable outlooks.

Moody's said the latest rating action follows the potential improvement of the SA government's credit profile, as reflected by the ratings agency's recent decision to confirm SA's Baa3 government bond ratings and assign a stable outlook.
Therefore, Moody's decided to confirm the global scale ratings for the 10 regional and local governments due to this sector's close financial and operational links with the sovereign.

Moody's upgraded the national scale rating of the Nelson Mandela Metropolitan Municipality to from The ratings agency said this was due to the municipality's persistently low debt levels and strong liquidity profile relative to other rated peers in the country.

Moody's confirmed the global scale short-term ratings of Prime-3 for the City of Cape Town, City of Ekurhuleni and City of Johannesburg.

As for the City of Cape Town, Moody's assigned a negative outlook. It said the negative outlook relates to uncertainty over whether the city will be able to avoid "Day Zero", where the water supply will be cut and residents would have to collect water from water stations.
Moody's pointed out that revenue from water and sanitation sales, which has already declined by 5% in the current financial year, will be further impacted if Day Zero does take place.

"The operating and administrative costs of distributing emergency water supplies - which is yet to be quantified - will place further pressure on the city's budget," said Moody's.

"Day Zero which is now expected to take place in 2019, will be triggered when overall dam levels reach below 13.5%. We will closely monitor developments around these issues."

Moody's maintained the Ba1 rating under review for downgrade for the SA National Roads Agency (SANRAL) due to uncertainty regarding the future of the Gauteng Freeway Improvement Project (GFIP) funding model.

Moody's expects SANRAL's liquidity to significantly weaken and noted large debt redemptions in the second half of the year. The ratings agency took note that since SANRAL implemented e-tolls in December 2013, cash flows from its GFIP remained weak due to ongoing opposition to urban tolling by various civil society groups.

The rating on review for downgrade reflects uncertainty over whether the national government will be able to resolve the GFIP funding model in a way that will allow SANRAL to honor all its commitments. The national government decision on the future of the GFIP funding model is expected at the end of May 2018.

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