The international ratings agency Moody’s has given Cape Town the highest possible credit rating, the city said on Thursday. At the same time Moody’s raised some of the ratings for Johannesburg.
Cape Town now has the highest possible level of credit quality within the national context, the city said. The cities’ ratings are different from the country’s rating, which are much more precarious – especially as it awaits ratings soon by international agencies Fitch and Standard & Poor’s – and reflect on its creditworthiness and ability to lend money more easily.
Cape Town received a long- and short-term global scale rating of Baa2 and Prime -2 respectively and a long- and short-term national scale rating of Aaa.za and Prime -1.za respectively, the city said.
Johannesburg at the same time said that Moody’s boosted its national scale rating by four notches from A2.za to Aa1. The global scale rating was raised from Ba3 to Baa2, “the same level as the sovereign rating”. In December, the agency Fitch also upgraded Johannesburg, after downgrading South Africa.
“It’s important to stress that Joburg is a city least dependent on national government grants as we generate a bulk of our own finances,” said the city’s manager Trevor Fowler.
Last weekend, South Africa fended off a degrading to junk status when Moody’s confirmed South Africa’s Baa2 long-term government bond and issuer ratings. Moody’s rates not only South Africa as a whole but cities and institutions, such as Eskom.
One of the primary benefits of a good rating, according to Moody’s, is “stable and more flexible access to global capital markets, lower funding costs and greater liquidity. Investors use Moody’s ratings to help price the credit risk of fixed-income securities they may buy or sell”.
Cape Town’s deputy mayor Ian Neilson said: “In a sense, the city will be less constrained by the country’s rating. This is especially advantageous for the city as it plans to approach the external bond market in the future.”
Johannesburg Mayor Parks Tau said “We identified financial resilience as a priority for the City, set a team to put together the City’s Financial Development Plan and pushed hard for its implementation. The accolades now received are an affirmation of the correctness of our strategies in managing the finances of the City.”
According to the Cape Town statement: “Moody’s cites as a reason for its decision the ‘City’s good budgetary performance, strong liquidity position and moderate debt levels. The financial position is supported by the administration’s prudent financial policies and its relatively large and diversified economic base’.”