Due to the controversial Gauteng e-tolling system, Moody's Investors Service yesterday downgraded the long-term ratings of the SA National Roads Agency (Sanral).
It has been decreased to a Baa1 rating (global scale, local and foreign currency) and to Aa3.za (South African national scale rating), from A3 and Aa2.za, respectively.
The service says the outlook on the ratings is negative and the rating action concludes the review for downgrade initiated on 19 January.
Uncertain future
“The rating action follows the recent decision of the South African government to further reduce the toll fees on Sanral's biggest toll road project (the Gauteng Freeway Improvement Project, GFIP),” says Moody's.
Its lead analyst for Sanral, Kenneth Morare, says the downgrade reflects the service's view of the medium-term fiscal tensions associated with lower-than-anticipated toll income from the GFIP, coupled with the higher operational risks of e-toll revenue collection and the uncertainties on Sanral's future business model.
Moody's notes that Sanral incurred R20 billion in debt to finance the GFIP project and the e-toll revenues are essential to service the debt and absorb concomitant operating costs.
“This debt issue contributed the most to the rapid increase in Sanral's debt stock to its current level of R39.7 billion (2012 FYE estimates) and exerted significant pressure on operating margins and cash flows during the project's implementation phase in 2009-2011. Public protests delayed the implementation of tolling operations, originally scheduled to start in June 2011, which caused financial shortfall to Sanral and delayed the registration procedures of vehicles.”
Not enough
The service adds that lower than anticipated toll income will significantly delay Sanral's return to historically strong financials and a moderate gearing position. “We expect Sanral to face the challenge to recover the delay of the GFIP operations and enforce toll collection, supported by a new legislation to be introduced by the central government.”
Transport minister Sibusiso Ndebele will table the Transport Law Enforcement and Related Matters Amendment Bill before implementation of e-tolling on 30 April to provide Sanral with enforcement powers for tolling.
Moody's acknowledged government's allocation of R5.8 billion to the GFIP and says this will help mitigate the pressures on Sanral and partially compensate for the reduction in e-toll fees. However, it noted that the lack of clarity in government's transport policy strategy and opposition against the expansion of the toll road network in the country raises concerns on the company's future business model.
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