Moody’s downgrades ratings of Mangaung Municipality

Moody’s Investors Service on Thursday downgraded Mangaung Metropolitan Municipality’s long-term global scale issuer rating to Ba3 from Ba2 and its long-term national scale issuer rating to Baa1.za from A1.za.

Both long-term ratings were placed under review for further downgrade.

The short-term global scale issuer rating remain unaffected at NP, while the short-term national scale issuer rating was downgraded to P-2.za from P-1.za and placed the rating under review for further downgrade.

According to Moody’s the rating downgrades reflect the ongoing deterioration in Mangaung’s operating performance and liquidity profile. The municipality has recorded negative operating balances for the past three fiscal years, driven by operating expenditure increasing at a faster rate (7% per annum on average) than operating revenue (4%).

As a result, Mangaung’s gross operating balance (GOB) to operating revenue ratios in fiscal years 2018, 2017 and 2016 were negative (-0.1%, -0.9% and -5.2% respectively) and low compared to its peers.

At the same time, Mangaung’s cash and cash equivalents declined to R289m in fiscal 2018 from R380m and R433m in fiscal 2017 and 2016 respectively. This occurred despite Mangaung reducing its capital expenditure from R1.4bn and R1.1bn in fiscal 2016 and 2017 respectively to R721m in fiscal 2018.

The city’s liquidity ratio remained broadly stable at an average of 1.1x over the three years, driven by a large increase in consumer receivables, with consumer debtors increasing at an average rate of 29% from fiscal 2016 to fiscal 2018; 83% of the gross debtors book is now 91+ days overdue.