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EThekwini GCR rating positive

Cape Town - International rating agency Global Credit Ratings (GCR) has reaffirmed South Africa's EThekwini Municipality's long- and short-term credit ratings of AA- and A1 and placed the ratings on rating outlook positive, the agency said on Monday.

The eThekwini Municipality, previously known as the Durban metropole, came into being in December 2000 following the municipal elections and is one of the six category-A municipalities in South Africa. The area under the municipality's jurisdiction has a population of over 3 million and accounts for approximately 7% of the country's total gross geographic product.

The city's port is also Africa's busiest, and is an important asset, especially for export aligned businesses.

According to Jason Hall, Executive Vice President at GCR, these are the highest ratings accorded to a local authority in South Africa and took into account its experienced and capable management team, as well as the sound judgement displayed by the political leadership.

The relative strength and diversified composition of the regional economy was positively considered, as was the significant level of spending by council on the stimulation of the regional economy.

The municipality continued to display a robust financial profile and high liquidity levels over the review period, whilst relatively stable and predictable revenue flows were evidenced.

Hall stated that total debt levels increased slightly in the 2002 financial year, primarily driven by loans from the Development Bank of Southern Africa (DBSA) and temporary bank overdraft utilisation.

However, the local authority's net debt (after deducting cash & cash equivalents) position improved, and this is expected to continue into F03. As a result, management indicated that capex in the 2003 financial year will be funded through a mix of internally generated funds, grant and subsidies, and existing cash reserves, and intends to rely less on external debt as a funding source.

An increased proportionate spend on staffing and the expected increase in the staff levels to satisfy the new organisational structure was, however, noted.

Hall said that eThekwini could also be negatively influenced by any increase in unfunded mandates (in terms of increased responsibilities devolved to local government from both provincial and national levels), or further working capital absorptions linked to increases in consumer debtors.

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