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12 Jan 2009
Johannesburg, January 12, 2009 -- Moody's Investors Service has today assigned a national scale issuer
rating of Baa2.za to the Municipality of Knysna in South Africa.
The rating outlook is stable.
The rating on Knysna considers the municipality's satisfactory operating
performance the moderately growing, albeit small, revenue
base. The rating also takes account of its high debt burden and
prospects for future increase in financial leverage to support the city's
capital programme. Knysna's local economy is fairly narrow
"Knysna's economy is underpinned by tourism, forestry,
agriculture as well as small and medium-sized industries -
particularly furniture manufacturing," says Leon Claassen,
a Moody's Vice President-Senior Credit Officer. "However,
economic growth has been taking place in the area, particularly
in the property and tourism sectors -- with retail business
developing as a result." Knysna, with a population
of 65,000 people, is located in the Western Cape province.
The tourism industry has benefited from the city's location within
the well known Garden Route area. Notwithstanding the recent economic
growth, unemployment is high at 30% and the income disparity
Based on revenue size, Knysna is among the smallest municipalities
in South Africa, with annual income of approximately ZAR300 million
in 2008. Moody's notes that Knysna's total revenues
have grown by more than 14.6% per annum over the past five
years, largely as a result of the growth in the property taxes.
Operational costs have increased at roughly the same pace as revenues
but the operating balances were varied during this period. Staff
costs are high relative to total expenditures, and the inadequate
maintenance expenditure and infrastructure requirements to support the
local economic growth add further rigidity to the municipal budget going
forward. Notwithstanding Knysna's debtors' collection
rate has been good over the last few years, Moody's expects
the increases in property taxes coupled with the economic slow down could
to adversely affect the collection rate going forward.
Knysna's debt levels are already high at 61% of operating
revenue and are likely to increase further due to the funding through
additional borrowings of ZAR152 million of the planned capital expenditures
of ZAR240 million over the next three years," says Mr Claassen.
"Maintaining the current high collection rate and tight budget control
are key factors in the management of these high debt levels, as
well as the preference for income-generating capex."
Knysna's Baa2.za issuer rating and stable outlook also incorporate
a low likelihood of extraordinary support from the central government
should the municipality approach a default situation.
The principal methodologies used in rating this issuer were "Regional
and Local Governments Outside the US" and "The Application
of Joint Default Analysis to Regional and Local Governments",
which can be found at www.moodys.com in the Credit Policy
& Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
Moody's National Scale Ratings (NSRs) are not globally comparable,
but address credit risk among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs employ the same set of upper and lower-case letters from Aaa
to C that Moody's already uses, but include a modifier to
signify the relevant country, e.g. A1.za for
South Africa. For further information on Moody's approach
to national scale ratings, please refer to Moody's Special
Comment from November 1999, entitled "Moody's Introduces
National Scale Ratings".
VP - Senior Credit Officer
International Public Finance
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns Baa2.za rating to Knysna Municipality in South Africa
International Public Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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