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Ratings agency Fitch has upgraded State-owned water utility Umgeni Water's national long-term and senior unsecured ratings to AA+(zaf) from AA(zaf), noting that the upgrade reflected a recalibration of the higher end of the South African National Rating scale.
“The ratings, which are notched down one level from the sovereign's rating, continue to reflect strong linkages between the company and the State, including the strategic importance of South Africa's water sector, and reflect a high level of implied support from the national government,” the agency stated.
It further pointed out that, although Umgeni has initiated a R4.4-billion capital expenditure programme, to be completed over the next five years, to increase capacity and replace ageing infrastructure, the agency was confident that Umgeni’s ample cash flows, cash balances and expected grants would limit the need to issue further debt within the company's R3-billion domestic medium-term note programme.
“Despite the expected deterioration in margins and credit ratios, the company's credit profile remains supported by low business risk,” stated Fitch.
Meanwhile, the ratings agency also affirmed Umgeni’s national short-term rating at F1+(zaf).