Picture: Eddie Mtsweni
Thebe Mabanga
The City of Ekurhuleni intends to use its good credit rating and outlook to raise funding for capital in order to improve its attractiveness as an investment destination.
This is according to Dr Nkosindiphile Xhakaza, the MMC for Finance, ICT and Economic Development at Ekurhuleni. Xhakaza was speaking on Thursday at the sidelines after delivering his budget speech at the Council Chambers in Germiston.
“The credit rating outlook of the City by Moody’s is quite favourable at Aaa.za. This means we remain the opportune and/or preferred destination for investment,” Xhakaza said in his address.
According to Moody’s, Ekurhuleni is rated at the high end of the range for South African municipalities.
Moody’s cites the city’s large and diversified revenue base, with a collection rate of 94%, as well as prudent management of its finances as some its reason for a good rating.
“The stable rating outlook reflects our expectation that the City of Ekurhuleni will sustain its comparatively strong financial performance and liquidity despite increased capital spending and debt over the next three years. Its track record of prudent budgetary management supports the outlook,” the ratings agency said in its February ratings update.
Xhakaza says the rating will be used to raise debt funding form the bond market but “borrowings must never be used to fund operations”.
Instead, borrowings must preferably be used to fund an income generating asset such as bulk water infrastructure, which generates revenue from water sales to residents and businesses.
He adds that even after using debt funding for infrastructure, the actual cost of debt must not be passed on to residents and businesses in the form of raised tariff.
Xhakaza says tariffs must be cost reflective and the revenue must service the debt and pay off capital.
One of the City’s strengths is that its funds its needs from internally generated revenue, operational as well as capital grants, without a need for borrowings.
Of its budget of R48.9-billion for the 2019/2020 financial year, operating expenditure accounts for R 41.5-billion, or 85%.
The city’s capital budget for the 2019/2020 financial year will rise by R900-million to R7.4-billion.
Of this, 11% or R884million is from internally generated revenue, while government grants account for 38%, or R2.8-billion.
Loans, including bonds, account for R3.7-billion of the spending, or 51%.
Xhakaza notes that the city is extremely prudent about how much it borrows and when it is to be used.
For instance, while Treasury allows municipalities to borrow up to 45% of revenue, Ekurhuleni is currently sitting at 23% with no plans to raise new debt soon.
Over the past financial year, Ekurhuleni raised R2.5-billion with the Development Bank of Southern Africa and R1-billion with Nedbank and is currently on a debt balance of about R8-billion, which it currently services comfortably.
This year’s capital spending priorities includes the upgrade and maintenance of electricity and water infrastructure, as well roads, while the city continues to invest in turning itself into a logistical hub.
