Downgrade hits Bay borrowing

The Nelson Mandela Bay municipality’s longterm global scale rating has been dropped a notch by Moody’s ratings agency.

This could make international borrowing by the municipality more challenging.

Moody’s decision to downgrade the long-term global scale rating to Baa3 from Baa2 was noted in the municipality’s agenda for its budget and treasury committee meeting on Thursday.

The report was given to councillors and it will be discussed at the next portfolio committee.

“[The downgrade] reflects the close operational and financial linkages with national government, illustrating the centralised nature of the local public sector in South Africa,” the agenda stated.

Moody’s Investors Service, which also downgraded the credit ratings of South Africa’s top five banks, three development finance institutions, certain City Power and Sanral credit ratings and scores of regional and local governments on Monday, added a Negative Outlook on the affected sub-sovereigns, which includes Nelson Mandela Bay.

In its agenda for the same meeting, the municipality said the downgrade mirrored the ratings actions Moody’s had taken on its “support provider, the government of South Africa”, which was also rated at Baa3/negative.

The municipality also said the changes in the sub-sovereign outlook would likely follow any changes taken at a national government level.

Importantly, Moody’s affirmed the Bay’s national scale rating of Aa1.za, which means the metro still enjoys a sound national credit rating standing.

Moody’s latest ratings follow ratings changes by Fitch Ratings and S&P Global, which both downgraded South Africa to junk status earlier this year.

“In essence, this is not as bad as it looks,” Bay budget and treasury portfolio head councillor Retief Odendaal said.

“There is no major impact on the metro, unless we are looking for loan funding. We may need loan funding for critical water and electrical infrastructure needs. The ratings change could mean that we pay higher interest rates for funding we secure,” Odendaal said.

The ANC’s whip for budget and treasury in the Bay, Rory Riordan, said he could not see any dramatic impact as a result of the ratings changes.

“The downgrade was to the long-term global scale rating, which should not impact us at all. We maintained our national scale rating, which I think is one notch above the highest rating, so there are no issues around that. We are not borrowing at present, so I don’t foresee any major impact,” he said.

Nelson Mandela Bay Business Chamber spokeswoman Cindy Preller said: “The chamber is concerned by downgrades of any nature as it is our mandate to grow the regional economy.” She said the South African fiscal status had the potential to severely diminish the levels of investment required to grow the Nelson Mandela Bay economy.

“The downgrade of the city is as a result of the weakening of the South African government’s credit profile and reduced growth prospects for the country.

“South Africa’s economy needs to urgently be re-prioritised,” she said.

Moody’s named the local governments affected by downgrades as the district municipalities of Amathole and Bergrivier, and the municipalities of Breede Valley, Cape Town, Ekurhuleni, Johannesburg, Mangaung, Mbombela, Nelson Mandela Bay, Rustenburg and Tshwane.

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