CITY OF JOHANNESBURG METROPOLITAN MUNICIPALITY - Ratings Upgrade by Fitch

Ratings Upgrade by Fitch

THE CITY OF JOHANNESBURG METROPOLITAN MUNICIPALITY

(A metropolitan municipality duly established by virtue of Notice 6766 of
01 October 2000, issued in terms of Section 12(1) read with Section 14(2)
of the Local Government Municipal Structures Act, 1998     as amended and
published in Provincial Gazette extraordinary No. 141 of 10 October 2000,
as amended by Notice No. 8698 of 2000 published in Provincial Gazette
extraordinary No. 195 of 04 December 2000)
Instrument Code: COJ02    ISIN: ZAG000022153
Instrument Code: COJ04    ISIN: ZAG000030941
Instrument Code: COJ05    ISIN: ZAG000054339
Instrument Code: COJ07    ISIN: ZAG000085044
Instrument Code: COJG01   ISIN: ZAG000116708
 (“CJMM”)

City of Johannesburg Fitch Ratings Upgrade

 Johannesburg’s reputation as an attractive destination for investment has
been strengthened by the decision of Fitch Ratings to upgrade and affirm
the City’s National Long-Term Ratings.

“The Fitch decision demonstrates global confidence in the quality of
Johannesburg’s financial management and corporate governance,” says City
Manager Trevor Fowler.

These ratings adjustments come in the wake of:
-The City of Johannesburg winning the C40 award in Paris for issuing the
first listed municipal Green Bond in the C40 network of 82 megacities to
address climate change challenges;

-Out of the 100 sustainable solutions chosen by Sustania Awards Committee
at COP21, the City of Johannesburg’s Green Bond made the top 10 finalist
for finding new funding sources for sustainable urban projects;

 -The election of MMC – Finance Geoffrey Makhubo, together with the Deputy
Mayor of Paris Patrick Klugman, as co-presidents of the Global Fund for
Cities Development (FMDV-abbreviation French) on the 3rd of December.

Mayor Tau says the city’s financial management team led by the Member of
the Mayoral Committee for Finance, Geoffrey Makhubo, and City Manager,
Trevor Fowler, has “turned the City’s finances around. We are now
collecting more revenue from ratepayers who have a growing confidence in
the City ability to give them value for the rates and taxes they contribute
to Johannesburg.”

“Johannesburg stands out as a great example of stability despite the
uncertainty in the local and global markets, rising interest rates and
rapid fluctuations in currencies.”
The report highlights the City’s “robust budgetary performance” when
measured against international standards, its prudent financial management
and its ability to maintain high levels of liquidity.
Johannesburg has been a leader in innovative funding since its inaugural
bond issuance in 2004. The municipality currently accounts for 41% of total
municipal bond issuances in South Africa. A stable rating, together with a
positive outlook would improve the credit profile of the City within the
debt capital Markets.


In 2011 the City adopted the Financial Development Plan to respond to its
key priority of financial sustainability. As a result the City has improved
its financial performance as highlighted by Fitch in the ratings report.


“We are encouraged by the fact that Fitch has based its assessment on
Johannesburg’s robust budgetary performance by international standards. It
also reflects the rating agency’s expectation of the City to achieve low
debt over the medium term because of its prudent financial management aimed
at maintaining high levels of liquidity and potential national support in
the light of its important status as the largest city in South Africa,” the
City Manager said.


He also added: “The national upgrade to AA(zaf) and maintenance of an
international rating, is a remarkable achievement when there is gloom and
pessimism about the global and South African economic outlook”.
“It also sends positive messages to the residents, ratepayers and business
sector that the policies being implemented by City are correct and that the
leadership can be trusted to continue on its current path”.


Fitch highlights the fact that “Johannesburg is the wealthiest city in
South Africa with an estimated Gross Domestic Product (GDP) per capita of
about 50% above the national average.” It is also the nation’s financial
and corporate hub.
Despite the backdrop of a slowdown in the national economy, Fitch expects
that the implementation of the City’s R100-billion investment in
infrastructure over a ten year period will support the performance of
Johannesburg’s economy. The rating agency says this will “lead to an
average GDP growth of 2 to 3% per year over the medium term” and result in
“an expanding tax base when coupled with slightly rising population.”


MMC Geoffrey Makhubo says the investment in infrastructure will contribute
significantly to the quality of life of residents and the business
environment – better roads and bridges, a more reliable power and water
network, greener and more accessible public transport.
“At the same time we are transforming the City through a spatial
development programme – the Corridors of Freedom – that seeks to eradicate
the inequalities of the past and grow a more equitable and just future
Johannesburg,” he says.
Fitch emphasises the fact that the City is able “to maintain cash balances
around R4-billion to R5-billion – well in excess of annual debt servicing
requirements.”
In the past 5 years, the City’s liquidity position has improved by 664% due
to a successful implementation of the Financial Development Plan and the
improvement in revenue collections.
A more extensive use of pre-paid meters will improve the expectations of
improved cash flows over the medium term. An average collection rate of 95%
of taxes and fees as well as a 75% level of provisions for difficult-to-
collect revenue “is above international Fitch-monitored peers” and protects
Johannesburg against the risks of liquidity pressure.
The Fitch Report is expected to encourage financial markets to invest in
the City and its long-term bonds which are intended to finance future
infrastructure development.




Highlights of the Report by Fitch Ratings on the City of Johannesburg:
- Fitch has upgraded the National Long-term rating and the national senior
unsecured ratings on outstanding bonds to ‘AA (zaf)’ from ‘AA - (zaf).’
- The National Short-term rating was affirmed at ‘F1 + (zaf)’
- The rating review was issued with stable outlook
- The ‘AA +(zaf)’ rating on the COJ02 partially guaranteed bond still
outstanding for R333-million has also been affirmed. The credit enhanced
COJ02 bond will reach final maturity in September 2016.
-Johannesburg continues to perform in line with Fitch’s expectations with
an operating margin close to 15% of revenue in the 2015-2017 fiscal years.
- Fitch views Johannesburg’s debt as sustainable at around 40% of recurrent
revenues.
- Johannesburg aims to maintain cash balances around R4-R5-billion, well in
excess of annual debt servicing requirements.
Johannesburg
21 December 2015
Debt Sponsor
The Standard Bank of South Africa Limited

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