Moody’s to look at municipalities, banks

Johannesburg - The Moody’s rating agency’s warning of a rating downgrade for South Africa has led to rating warnings for 27 government entities, municipalities and banks.

Last Tuesday, Moody’s warned that South Africa was on review for a credit rating downgrade.

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“The decision to place the ratings on review was prompted by the continuing rise in risks to the country’s medium-term economic prospects and its fiscal strength, notwithstanding the tighter fiscal stance taken in the 2016/17 Budget,” said Moody’s at the time.

It noted that South Africa’s economy was expected to grow at only 0.5 percent this year, as well as the drought, strikes, public sector wage hikes, and the “worsening debt dynamic”, which saw government debt increase from 26.5 percent of gross domestic product in March 2009 to this year’s 50 percent of GDP.

In the days since that announcement, Moody’s has warned that several municipalities and institutions also face reviews for a possible downgrade.

On Wednesday, Moody’s warned that the ratings of Eskom and the Airports Company SA were on review for a downgrade, due to their financial dependence on the government. The following day, the Industrial Development Corporation and Development Bank of SA were on the list.

Then, the country’s five biggest banks - Standard, FirstRand, Absa, Nedbank and Investec - were warned of a review for a downgrade.

Again, this was “driven primarily by the increasing risk of a weakening credit profile of the government as captured by Moody’s decision to place on review for downgrade South Africa’s sovereign rating”. The banks link their credit-worthiness to that of the national government, it said.

By Friday, the downgrade warnings included Transnet and Sasol. By the end of the day, 11 South African regional governments and three government-linked entities were added to the list for downgrade review and two more municipalities had their outlook changed to negative.

The decision, said Moody’s, “reflects the close operational and financial linkages between the national government and municipalities, illustrating the centralised nature of the local public sector”. They also face the same national economic growth problems, have their own debt, and “continue to register high demand for welfare benefits and infrastructure”.

The Moody’s team is due in South Africa later this week.

Those facing downgrade reviews are:

* Amathole District Municipality

* Breede Valley Municipality

* The City of Cape Town

* Ekurhuleni Metro

* City of Joburg

* KwaDukuza Municipality

* Mangaung Metro

* Mbombela Municipality

* Nelson Mandela Metro

* Rustenburg Municipality

* City of Tshwane

* City Power Joburg

* East Rand Water Care Company (Ekurhuleni)

* SA National Roads Agency

Those changed to negative are:

* Bergrivier Local and Umgungundlovu District municipalities

THE STAR