By Roux van Zyl

Buffalo City Municipality has been assigned a stable, above-average credit outlook by international ratings agency Moody’s.

The A1.za national scale issuer rating comes only weeks after the provincial auditor-general (AG) issued a qualified audit report on the municipality, stating that something was “seriously wrong” with the city’s finances.

Moody’s rating, which was issued on January 18, reflects a baseline credit assessment (BCA) of eight on a scale of one to 21, in which one represents the lowest credit risk.

In its credit finding, Moody’s stated that BCM’s economy was dominated by the strong automotive industry and a growing local economy reflected in the upturn of residential and commercial development.

The city had “sound financial management and budget planning”, with a focus on the retention of some of its experienced senior executives, and its liquidity position was considered sound given its net cash resources and monthly cash flows.

On the down side, the city’s biggest challenges were high levels of poverty and unemployment, with approximately 71% of the population earning less than the household subsistence level of R1500 a month.

Moody’s warned that if the city’s current high level of deferred maintenance, coupled with its inadequate maintenance of existing assets, continued, the city’s A1.za rating would be downgraded.

In the agency’s findings it emerged that BCM planned to spend some R1.1billion on capital projects over the following three years, of which R250million would be financed through external borrowings.

“Moody’s anticipates that (BCM’s) debt burden ... that is expected to increase to finance a portion of the capital projects, should remain at a manageable level,” the agency stated.

Last week, BCM’s chief financial officer, Brian Shepherd, welcomed the A1.za rating, saying “it is unfortunate that an incorrect picture was given or perceived by the auditor-general’s report”.

“Moody’s are the financial experts and don’t only look at the fairness of the balance sheet, but (at) both the management capability and the external environment, which could affect the municipality’s ability to sustain service delivery,” he said.

In his audit report, A-G Singa Ngqwala found that BCM did not have records of assets worth over a quarter of its R2.2 billion budget.

“It was not possible to verify the existence and completeness of infrastructure assets of R546.3 million and heritage assets of R559356, as disclosed in the annual financial statement,” Ngqwala said.

Meanwhile, BCM’s rival, Nelson Mandela Bay, received a slightly better rating of Aa3.za, which also predicts a stable outlook and very strong creditworthiness.

Source: Daily Dispatch