Photo by: Duane Daws
South African National Roads Agency Limited’s (Sanral’s) “intensifying cash flow pressures” on the back of the delays in the implementation of e-tolls resulted in a downgrade from ratings agency Moody's Investors Service on Friday.
The rating agency dropped Sanral’s long-term issuer ratings from Baa2 and A2.za to Baa3 and A3.za.
Further, Moody's has placed these ratings and the global scale short-term rating, P-3, on review for further downgrade.
E-tolling was initially expected to start in June 2011 and its revenue was expected to absorb Sanral’s mounting debt-service costs, which had reached R36.2-billion by 2013, from R6.2-billion in 2007, owing to the Gauteng Freeway Improvement Project (GFIP).
“The decision to downgrade Sanral’s rating is driven by the significant deterioration in the company's cash flows, which are necessary to meet its operating expenses and to service its very high debt levels acquired to fund the [R20-billion] GFIP,” Moody’s said in a statement.
The ratings agency believed that Sanral would embark on further borrowings, with the entity's debt stock projected to total R39-billion by the 2014 financial year.
“While Sanral has R15-billion available in its guarantee from the South African government to issue more debt to meet its operating requirements for the next few months, including redeeming the R2-billion scheduled for October 31, 2013, additional debt issuance will further increase its already high finance charges and will put more pressure on Sanral's finances even with the anticipated realisation of e-toll revenues as budgeted by Sanral for the period 2013/14 to 2015/16,” Moody’s pointed out.
Moody’s would, in the next three months, review the road agency’s ability to manage its current cash challenges and its ability to implement the e-tolling system and realise revenue.