Publications
Partners
Johannesburg - Moody's Investors Service has changed its outlook on the SA National Roads Agency Limited's (Sanral's) issuer rating from stable to negative.
Rating rationale
According to Moody's, the move follows the dent given to Sanral's financial strength by weaker than expected e-toll revenue collection from the Gauteng Freeway Improvement Project (GFIP) scheme and Sanral's plans to increase debt issuance.
Non-payment of e-tolls has increased following a decision by the Gauteng government to establish a panel to assess the impact of e-tolls on doing business in the province, which sparked speculation among the general public that the e-toll project may be abandoned.
READ: E-tolls 'systematically collapsing' - MP
This caused e-toll revenue collections to drop by 38% from July to November 2014, which in turn led Sanral to revise downward its expected e-toll revenue for the fiscal year 2014/2015 to R907m, against R1.4bn previously.
As e-toll revenue was planned to be the main contributor towards the reduction of borrowing requirements, as well as help improve cash flows, the lower than expected revenues will likely lead to an increase in Sanral's debt level. Moody's anticipates that Sanral's debt will increase more than expected and reach R44.1bn by March 31 2015, from R39.6bn at March 31 2014.
Moody's says its affirmation of Sanral's ratings at Baa3/A3.za reflects the explicit guarantee on 74% of its total debt and implied guarantee on the remaining 26% from the national government as of December 31 2014.
In addition, Sanral could legally enforce e-toll payments through the Sanral Act and the Transport and Related Matters Amendment Act, although these are yet to be implemented. Moody's will continue to monitor e-toll collections in the coming months as well as Sanral's cash flow and any potential impact on its ratings.
According to Moody's Sanral remains a key strategic asset for the SA government, which has mandated Sanral to develop, finance and manage the national road infrastructure in South Africa.
READ: E-toll report a victory for the poor - SACP
What could change the rating?
A stabilisation of the outlook would require evidence of Sanral's capacity to generate strong e-toll revenue collections. A structural improvement in the company's financial position, leading to lower than anticipated borrowing needs, could also apply upward pressure.
The inability to generate sufficient e-toll revenue, leading to deteriorating cash flows and growing borrowing needs, would apply downward rating pressure. Any indication of a loosening of the sovereign's willingness to support Sanral would likely lead to adowngrade.
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks.
ALSO READ: E-tolls ideas trying to be half pregnant - Outa
