Moody’s Investors Service has changed the outlook on South African National Roads Agency Limited’s (Sanral) issuer rating from stable, to negative, citing a decrease in its financial strength.
Moody’s also lowered Sanral’s Baseline Credit Assessment (BCA) to b2 from ba3.
“The change in outlook and lower BCA reflect Moody’s assessment of the decrease in Sanral’s financial strength, following weaker than expected e-toll revenue collection from the Gauteng Freeway Improvement Project (GFIP) scheme and Sanral’s plans to increase debt issuance,” the ratings firm said.
It said that the non-payment of e-tolls has increased following a decision by the Province of Gauteng to establish a panel to assess the impact of e-tolls in doing business in the province, which sparked speculation among the general public that the e-toll project may be abandoned.
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 2014-15 to R907 million, against R1.4 billion 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 said.
“Moody’s anticipates that Sanral’s debt will increase more than expected and reach R44.1 billion by 31 March 2015, from R39.6 billion at 31 March 2014.”
Moody’s also affirmed the Baa3/P-3 (global scale, local and foreign currency) and A3.za/P-2.za (South African national scale) ratings.
Moody’s said that 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 31 December 2014.
In addition, Sanral could legally enforce e-toll payments through the Sanral Act no 7 of 1998 and Transport and Related Matters Amendment Act of 25 September 2013, although these are yet to be implemented.
Moody’s noted that a stabilisation of the outlook would require evidence of Sanral’s capacity to generate strong e-toll revenue collections.
“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 a downgrade.”