Political Correspondent

INTERNATIONAL rating agency, Fitch Ratings has assigned the City of Johannesburg's R1bn bond issue a national long-term rating of A-.

The six-year bond was officially listed at the Johannesburg Bond exchange on Tuesday morning.

The rating, which according to Fitch denotes a "strong credit risk" relative to other issuers or issues in the same country, is expected to enhance the city's ability to borrow through loans and bonds at a cheaper rate.

According to Fitch, the city's sixyear bond constitutes a direct, unconditional, unsecured and unsubordinated obligation of the city.

City treasurer Jason Ngobeni said two weeks ago that proceeds of the issue would be used to refinance existing loans and to fund new capital expenditure in electricity, water, roads and traffic lights.

Fitch also affirmed the city a national short-term rating of F2-, which acknowledges the municipality's position as the single-largest municipality in the country, as well as improvements in its financial planning procedures and fiscal prudence, said Fitch.

The international rating agency said that in rating the city it also took into account the increased spending of the municipal entities, weak revenue collection and pressure from additional external borrowing for capital expenditure.

"The weak socioeconomic environment unemployment, crime and HIV/AIDS in particular remains a concern not only for the municipality but for the country at large." it said.

The city's efforts to gradually adopt a more sustainable financial pattern since the 1997 financial crisis, which left it with an R8bn backlog, are also acknowledged by the agency.

This, said Fitch, was helped by a number of significant structural changes that have since been implemented, including the separation and establishment of independent municipal entities for the acceleration of service delivery to its citizens.

It commends the city management for having taken a "prudent approach, by continuing to make provisions for bad debts".

It said, however, that despite these improvements, the troubled financial history of the city and its services still has an effect on its performance.

"Furthermore, the city suffers from low tax and servicecharge collection rates although this has been fully factored in the cashbalanced budget."

Improvements were also needed in the city's revenue billing and accounting system.

The city is planning two bond issues totalling R2bn by the end of this fiscal year (2003-04), which will be used for refinancing old debt and fund new infrastructure development. Based on Fitch's conservative estimates, the city's debt is expected to increase to nearly R5bn by the end of June this year, from R3,9bn a year ago.

Ngobeni said the A- rating would enhance the city's capacity to access long term financing. He said lenders normally factored in the credit risk in the pricing of loans.

Apr 15 2004 07:09:15:000AM Sphiwe Mboyane Business Day 1st Edition