City leads the pack


THE latest assessment of the City of Johannesburg’s management of finances by
Fitch Ratings Agency has confirmed its pole position as a financial leader and
Fitch has lauded the City for its R100bn 10-year infrastructure plan and its innovative
debt redemption strategy through its use of the Redemption Fund – the first by a Metro
in the country.
The R100 billion for infrastructure will cushion the City against an apparent global
economic slowdown while the Redemption Fund sits as a testament for the City’s
insatiable appetite for innovating its way out of challenges.
In fact, it appears the only thing holding Fitch from giving CoJ a positive rating is the
country’s negative outlook. Fitch notes in its assessment: “The probability of a positive
rating action on CoJ in the near term is low owing to the Negative Outlook on the
Group Chief Financial Officer for CoJ Reggie Boqo says it is quite telling that Fitch’s
commentary limits the possibility of a positive rating outside of what the CoJ could do –
but identifies the limitation as national performance.
Fitch, crucially, notes that in spite of national and economic economic slowdown, it
“expects activity generated by the implementation of the city’s R100bn 10-year
investment plan to support CoJ’s economy, leading to average GDP growth of 3% per
annum over the medium term, conducive to an expanding tax base coupled with a
slightly rising population”.
This positive development comes in the wake of slowing global economic activity, with
advanced economies projected to perform in the region of 1.8% to 2% in the medium

In the first quarter of 2015, the global economy continued on a subdued path and
recorded a disappointingly slow pace of growth amid China registering the slowest
pace of expansion in more than six years.
City Manager Trevor Fowler says the City is overjoyed by the positive feedback on
prudent management of the City’s finances. “Some challenges remain, and we are
seized with them – but we are certainly on the right path”.
In its assessment, Fitch said: “Johannesburg continues to perform in line with Fitch
Ratings’ expectations, with an operating margin close to 15% of revenue in the 2015-
2017 fiscal years (to end June). Johannesburg is the wealthiest city in South Africa
with GDP per capita about 50% above the national average of USD12,250 and the
nation’s financial and corporate hub”.
Fitch also had positive comments about the CoJ’s Redemption Fund, established in
2006, which now sits at R3.7bn. The CoJ was the first municipality in SA to establish
such a fund, says Boqo, seen by investors as an innovative strategy and redemption
guarantee against debt issuances within the Debt Capital Markets.
The stock of bonds and loans, used mainly to finance capital spending, are expected
to rise from the R15,8bn in June 2015 to R20bn in June 2017. “Provisions into the
Redemption fund, hovering around R2bn-R3bn, provide a buffer against repayment
peaks such as a R1.7bn bullet bond due in 2018″.
The Redemption Fund has managed to repay bonds (COJO1, COJ02 and COJ03)
worth R2.2bn since inception.
“The City of Johannesburg, which is the first metro to establish a debt sinking
(Redemption) fund in South Africa, is proud of this achievement. This success has
mainly contributed to other metros following suit in setting up similar debt funds for the
same purpose. Joburg leads,” said Member of the Mayoral Committee for Finance, Cllr
Geoffrey Makhubo. He adds that Fitch’s remarks reaffirms the correctness of the CoJ
Makhubo, who is also one of the vice-presidents of the Metropolis Global Funds for
Cities Development (FMDV), paid homage to the city’s leadership and employees for
this great achievement.
“We want our residents and stakeholders to know that we always strive to do better in
serving their interests. The City’s finances are handled with utmost care and
circumspection,” he said.
Fitch noted that the City’s budgetary performance is robust by international standards,
and applies conservative financial management principles which aim to maintain high
levels of liquidity. Although the economic environment is challenging and a burden to
consumers, the City through its financial management strategies was able to maintain
healthy liquidity levels.

“The City would like thank the investor community for showing confidence in the City
leadership by continuing to provide funding for infrastructure. The City successfully
raised R3,3 billion for the year ended 30 June 2015. We would like to express our
appreciation to the people of Johannesburg for enabling progressive infrastructure and
service delivery by paying for their municipal services especially in the current fragile
economic environment,” said Boqo.
The increased extensive use of pre-paid meters is expected to support the City’s
objective of attaining a collection rate of 95% – up from the current 93%.
The Agency affirmed the City’s
i) Long-term local currency Issuer Default Rating (IDR) at ‘BBB’ with a stable outlook,
ii) National Long-term rating at ‘AA-(zaf)’ with a stable outlook, and
iii) the National Short-term rating at ‘F1+(zaf)’.
The City’s outstanding liability bonds (excluding COJ02) were affixed a rating of ‘AA-
(zaf)’, while COJ02 which is partially guaranteed by DBSA and IFC retained its rating
of ‘AA+(zaf)’.
This statement was issued by the City’s revenue department.

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