Johannesburg - Pressure on the South African National Roads Agency Limited (Sanral) to resolve its funding crisis has increased since Moody’s Investors Service last downgraded its credit rating and placed the parastatal on review for a further downgrade.
The crisis is the result of its failure to implement e-tolling on the Gauteng Freeway Improvement Project.
On Friday, Moody’s downgraded Sanral’s long-term issuer rating to Baa3 from Baa2 and South African national scale rating to A3.za from A2.za.
Its credit rating is now only one notch above junk grade. The lower rating means it will pay more to borrow money, a bill that is met by taxpayers.
Moody’s said the downgrade “reflects the company’s intensifying cash flow pressures”.
It follows Sanral stressing last month that it would have a critical need within the next three months for R1.48 billion in additional funding because of financial challenges caused by delays in the implementation of e-tolling in Gauteng.
Sanral was in talks with a number of banks to obtain this cash because it had been unable to raise capital from the bond market for more than a year because investors were uncomfortable with its risk profile.
Sanral spokesman Vusi Mona said on Friday that the downgrade was not unexpected but “it still does pain us”.
“When rating agencies perceive any indecisiveness in the implementation of policy, this is the result you get,” he said. Mona stressed the downgrade was not simply academic because it affected Sanral’s risk profile and it raised money not only through bonds but also from commercial markets.
“Sanral is in discussions with the shareholder [the government] about the matter and we are assured of its support.”
Azar Jammine, the chief economist at Econometrix, said Sanral’s credit downgrade pained him because it could have been prevented by adding 10c to 12c a litre to the fuel levy in the past two and a half years.
Jammine said even if e-tolling were implemented, it was doubtful whether Sanral would be able to collect all the money because of the huge non-payment record of, for example, traffic fines.
If it was downgraded again, it would no longer be rated investment grade, which meant pension funds by law would not be allowed to buy any of Sanral’s bonds.
Wayne Duvenage, the chairman of the Opposition to Urban Tolling Alliance, said it was concerned but not surprised by the further downgrade to Sanral’s credit rating. “Sanral’s inability to launch e-tolling on five attempts over the past three years has highlighted the serious nature of the myriad issues at stake for this most ambitions plan.”
While Sanral and the government “duck and dive” behind a possible further delay caused by technicalities within the constitutional tagging framework, the actual decision to be made was of going back to the drawing board and scraping the current unworkable e-toll model.
He said the alliance trusted that the Moody’s downgrade would send another strong message to Sanral and its shareholder, the Department of Transport, which might now be pressed to find a more equitable and efficient funding solution.
Moody’s said it could in the future affirm Sanral’s credit ratings if it stabilised its cash position without a major recourse to debt and was able to implement e-tolling and realise additional revenues necessary to support its financial performance in the medium term.
Conversely, Sanral’s inability to implement e-tolling, with consequent further tensions in cash flows going forward, accompanied by heavy reliance on debt issuance as a substitute to cover operating costs, would exert downward pressure on Sanral’s rating, it said. - Business Report