Moody's downgrades Ekurhuleni to junk, places Tshwane on review
Credit rating agency Moody's has downgraded the City of Ekurhuleni to junk status, while also placing the municipality on review for further downgrades.
The City of Tshwane is also in a similar position and on review for a downgrade.
The actions comes after the two cities failed to submit their audited financial statements to the Johannesburg Stock Exchange (JSE) by the end of February.
The rating agency says the delay by municipalities was seven months after the financial year end of 30 June 2023.
Moody's says the decision to place the ratings of both municipalities on review for further downgrade was due to the increased risk of debt and potential risk of being suspended from the JSE list.
"The JSE announced on the 1st of February 2024 that both Ekurhuleni and Tshwane's listing of debt securities and the registration of their program memoranda would be suspended if they failed to submit their audited financial statements by this deadline, as stipulated in the JSE's debt listings requirements.
"Although the timing of a potential suspension and the subsequent delisting of the notes is uncertain, in Moody's view the failure of the two cities to submit their audited financial statements has increased the risk of a debt acceleration should a de-listing occur and of potential defaults ultimately, given their weak liquidity position," said the agency.
The agency explained the downgrade for the City of Ekurhuleni's ratings reflects the increased risk of default amid weakening governance and management practices.
The municipality failed to table its financial statements to the city council, following a dispute with the Auditor General.
The EFF, which is heading the finance portfolio in the city, has since accused the AGSA of political interference for failing to return their financial reports on time.
The AGSA refuted claims, saying the statements were unfortunate and misleading.
The rating agency said it will assess whether the failure to meet the submission deadline reflects weaker governance.
"During the review, Moody's will assess the implications of a debt suspension or a subsequent delisting on the issuer's ability to meet its debt obligations, including through potential acceleration. Moody's will also assess whether the failure to meet the submission deadline reflects weaker governance than currently embedded in the ratings."
The agency said both municipalities have since committed to submit their financial statements by end of March.
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