25 January 2007

Cape Town's long-term credit rating has been raised to AA- by CA Ratings. Its short-term credit rating has been raised to A1+.

The City's improved debt collection programme, sound liquidity and hands-on management have earned it the upgraded ratings.

CA Ratings, a Johannesburg company, did the first independent credit rating of the City in October 2005. At that time it scored a long-term A+ and short-term A1 grade. The latest evaluation was done in the last quarter of 2006.

Credit ratings establish a city or company's financial viability. They look at financial strategy, management systems and financial profile in terms of revenue, expenditure and debt management.

"These ratings indicate a very strong capacity to repay long-term liabilities and an extremely strong capacity to repay short-term obligations,'' says Ian Neilson, the mayoral committee member for finance.

"We face major challenges and high capital expenditure is needed to eradicate infrastructure backlogs and unemployment to improve our residents' quality of life. This upgrade will be very beneficial in attracting investment and in facilitating borrowing at competitive rates to achieve these goals."

According to a report by CA Ratings, the company raised the City's grading based on its low debt burden, which it expected would remain modest over the medium term. Its recently improved debt collection rate and sound liquidity, as well as the experienced hands-on management at top level, also contributed to the improved rating.

The report states that Cape Town plans to spend R6,7-billion over the next three years on capital projects, which will be financed by R2,4-billion in grants, R3,1-billion in borrowings and R1,2-billion in revenue. Its interest bearing debt is expected to peak at some R4-billion in 2009, and is expected to remain manageable.