Sanral battling Moody’s blues

JUNK STATUS: EBBING TOLL REVENUE LIKELY TO TIP SCALES

Government is likely to fall back on taxpayers for a bailout as Sanral faces the looming reality of a credit rating cut.

Government is likely to fall back on taxpayers for a bailout as Sanral faces the looming reality of a credit rating cut to junk status.

The SA National Roads Agency Ltd (Sanral) will have its job cut out to explain why it should retain its credit ratings when Moody’s takes its finances under review this week.

The review comes after Moody’s downgraded the sovereign credit rating as well as Eskom last week.

Moody’s affirmed Sanral’s Baa3/ A3.za ratings at the end of June, primarily due to “evidence of good electronic (e-toll) collections”.

Dashed hopes

Then, e-toll collections were ahead of expectations. Sanral had projected toll revenues to grow to R4.1 billion by the end of FY2015, R1.8 billion of which would be from e-tolls.

“The e-toll project will enable Sanral to realise the additional toll revenue necessary to both absorb cash flow pressures emanating from its operating costs (including debt servicing) and to gradually limit borrowing needs,” Moody’s said at the time.

It further stated “any failure by Sanral to generate e-toll revenue – albeit unlikely – leading to deteriorating cash flows and growing borrowing needs” could lead to a further downgrade.

Hardly two weeks after this report, Gauteng Premier David Makhura announced the appointment of a panel to review the impact of e-tolls. Road users jumped at the opportunity to stop paying, and that immediately affected Sanral’s revenue. From a peak of R120 million in June, e-toll collections steadily declined to just under R90 million in September – compared with projected collections of about R125 million.

Investors also seemed to lose confidence and, at its last bond auction of the year last week, the bids reflected a risk premium Sanral considered unaffordable. So it only took up R415 million in bond offers instead of the R500 million it needed.

Another downgrade will see Sanral at a subinvestment or so-called junk rating. The implications of this are huge. Apart from the fact that many investors will lose their appetite for Sanral bonds, those prepared to risk it will charge accordingly. “We cannot afford it,” Sanral CFO Inge Mulder said last week.

Sanral is dependent on its monthly bond auctions to fund its toll portfolio and, without it, cash flow and debt repayment will be jeopardised.

Cashing in

Fund managers who are mandated to invest in only investment-grade products will probably take the opportunity to cash in.

Sanral has R47 billion in debt, mostly in bonds. Only a portion carries a government guarantee, but the balance carries an implied guarantee in terms of the Sanral Act, Mulder said.

In the end, government will be the last port of call for investors who want their money back.