Johannesburg - The government commitment to support the SA National Roads Agency Limited (Sanral) was key to ratings agency Moody’s Investors Service affirming Sanral’s existing credit rating last week.
However, Moody’s said the outlook for Sanral’s credit ratings remained negative. This implied that yet another downgrade might be on the way, which would increase the cost of funding.
Moody’s has downgraded Sanral’s ratings three times since February 2012.
Support
Moody’s said last week Sanral’s ratings incorporated “a very high probability of extraordinary support from the central government should the company face acute liquidity stress”.
“This assumption reflects the strategic role of the company, as highlighted by the government’s explicit guarantee on 76 percent of its total debt and an implied guarantee on the remaining 24 percent,” it said.
Moody’s affirmed Sanral’s long-term issuer ratings of Baa3/P-3 global scale, local and foreign currency rating, which is one notch above junk status, and its A3.za/P-2.za South African national scale rating.
Inge Mulder, the chief financial officer at Sanral, did not respond to an e-mailed request for comment.
Moody’s said its negative outlook was driven by the continued uncertainty over whether the government would be able to enforce the payment of electronic tolls (e-tolls).
“While the national government is planning to make motor vehicle licence renewals contingent upon the payment of outstanding e-tolls, the necessary legislative changes will likely take up to 18 months to implement,” it said. “The enforceability of this and other possible measures to improve revenue collection remains untested.”
Moody’s said an inability to effectively enforce e-toll payments, leading to deteriorating cash flows and increased borrowing needs, would apply downward rating pressure on Sanral while any indication of a loosening of the government’s willingness to support Sanral “would likely lead to a downgrade”.
A stabilisation of Sanral’s outlook would require evidence of its ability to enforce payments and a substantial improvement in its revenue collection, it said.
Downgrade
Mike Schussler, the chief economist at Economists.co.za, said the problem with a ratings downgrade to Sanral was that it would increase the cost of its capital and it would have less money to maintain the roads.
Schussler said he got the impression that Sanral’s capital expenditure was lower than it used to be and it was using this money to pay down its debt.
Wayne Duvenage, the Opposition to Urban Tolling Alliance chairman, expressed surprise that Sanral had retained its credit rating because it was unable to meet its financial commitments through toll fees.
Duvenage believed the Treasury had helped Sanral to retain its ratings because it previously used to get R10 billion a year and this year got R12.5bn.
“Sanral certainly aren’t funding their bond repayments through e-tolls and that is why there is a negative outlook. Sanral also still has to come up with a plan to get people to pay e-tolls,” he said.
Sanral confirmed in May that it had R45bn in outstanding bonds, interest and loans.
Inge Mulder, Sanral’s chief financial officer, said it had refinanced a bond that matured in April and would refinance three other bonds worth about R2.5bn that would mature in September, with most of the refinancing already completed.
Moody’s said it would continue to monitor e-toll collection rates to assess the effect of the government measures.
It said Sanral’s substantial debt level increased to R46.4bn in 2014/15 from R39.6bn at the end of 2014, largely driven by a sharp decline in e-toll collections and higher borrowing needs, and expected it to remain at about R46bn in 2016/17.
“Should e-toll collection prove less favourable, we note that the company could tap its significant cash buffer of R6.5bn as of June 30, 2015.”
BUSINESS REPORT