The SA National Roads Agency's (Sanral's) credit rating - on both a global and national scale - has been confirmed by global credit rating agency Moody's Investors Service following the implementation of e-tolls last week.
At the same time, says Moody's, a negative outlook has been assigned to the state-owned roads agency, which could turn its fate around if it proves to make a success of the contested open-road tolling system, and turn a profit.
The latest rating action comes in the wake of government's e-toll system starting to operate to the end of bringing in money, after about 18 months of delays amid court cases and uncertainty.
In September, when a go-live date for e-tolling was still uncertain at best, Moody's downgraded Sanral to one notch above the so-called "junk" level - that is, a grade before an entity becomes sub-investment and is no longer investment class.
At the time, Moody's said the downgrade was a result of "the "significant deterioration" in Sanral's cash flow, which was necessary to meet its operating expenses and service its debt levels for the Gauteng Freeway Improvement Project (GFIP), among other things.
"The cash-flow strain has arisen from the prolonged delay in the promulgation of the Transport and Related Matters Amendment Bill [the E-toll Bill] that would allow the commencement of the collection of toll on GFIP," said the credit rating company.
The review for downgrade that resulted, initiated on 6 September, has been concluded with the latest affirmation on the back of e-toll commencement.
Turning tables
The negative outlook it has now assigned Sanral, says Moody's, is based on the "operational risks associated with e-toll collection, given the limited track record of the newly established method of collection, enshrined in the [E-toll Bill] which is aimed at enhancing Sanral's capacity to enforce payment of e-tolling fees".
Moody's says Sanral's outlook also mirrors the negative outlook on SA's sovereign rating.
According to FitchRatings.com, Rating Watches indicate there is a heightened probability of a rating change - and the likely direction of such a change. "These are designated as 'positive', indicating a potential upgrade; 'negative', for a potential downgrade; or 'evolving', if ratings may be raised, lowered or affirmed."
However, Sanral, which has reaffirmed its confidence in what it says is a world-class system, can change its downward fate, notes Moody's.
An upgrade - or stabilisation - from Moody's would require the roads agency to prove it can realise "adequate cash flows" from e-tolls, says the service.
"A structural improvement in the company's financial position, leading to lower than anticipated borrowing needs, could also apply upward pressure," said Moody's in a statement.
"Sanral's failure to maintain sufficient e-toll revenue collection, leading to deteriorating budgetary performance and growing borrowing needs, would apply downward rating pressure."
Revenue rise
Moody's says e-tolls will enable Sanral to realise the additional toll revenue necessary to absorb cash-flow pressures emanating from its high operating costs (including debt service) and to reduce its borrowing needs.
According to Sanral, e-tolls will increase its total toll revenue to R2.8 billion for the financial year ending 31 March 2014 from R2.1 billion at the current financial year-end. Sanral expects toll revenue to accelerate to R4.8 billion by financial year-end 2015.
Moody's points out the GFIP led to substantial debt issuance of R20 billion, and is responsible for most of the rapid surge in Sanral's debt stock over the last few years.
"The company's debt stock is projected to rise to R39.8 billion by March 2014, including R5.1 billion in new borrowing incurred in 2013 to sustain cash flows absent e-toll revenue and for debt redemption."
Sanral's debt levels are projected to further rise to R44.4 billion by the end of March 2015, due to the need to fund the agency's increasing capital investments.
Sanral, represented by the minister of transport representing the state as its sole shareholder, remains a key strategic asset to government, which has tasked the roads agency with developing, financing and managing SA's national road infrastructure.
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