Moody's upgrades Sanral from negative to stable

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Moody's has changed the outlook for the South African National Roads Agency (Sanral) from negative to stable, it said on Friday.

Sanral manages the national road network on behalf of national government.

Moody's says its rating reflects the SA government's plan to provide additional financial support to Sanral's Gauteng Freeway Improvement Projects (GFIP) for the next three years.

This additional grant will enable the agency to fund its operating requirements related to the Gauteng Freeway Improvement Projects, while the decision on the long-term funding model of e-tolls is being reviewed.

In its ratings report Moody's refers to the ongoing opposition from the public to the user-pay principle of e-tolls. This has resulted in weak cash flows from the project.

"The rating is constrained by very high debt levels, high capital expenditure requirements as well as well as ongoing liquidity pressure related to low cash collections on the Gauteng Freeway Improvement Projects," said Moody's.

According to Moody's, Sanral's ratings could be upgraded if the government introduces an alternative funding model which will include collection and enforcement strategies for the Gauteng Freeway Improvement Projects that will result in a structural improvement in Sanral's cash flows.

On the other hand, although it regards this as unlikely, the rating could be downgraded if there are any changes in the level of government support for Sanral.

A downgrade of South Africa's rating could also exert negative pressure on Sanral's ratings.

Moody's affirmed Sanral's long-term local and foreign-currency global scale rating at Ba2 - two notches below that of the South African government.

According to Moody's, this reflects the uncertainty over whether the government would be willing to step in to support Sanral's unguaranteed debt in the unlikely event that the government itself was approaching default.

The rating also reflects uncertainty over whether the government will be able to introduce an alternative funding model to the Gauteng Freeway Improvement Projects in such a way that Sanral's cash flow is improved.

Sanral receives regular transfers from the government for the non-toll road network under management, which accounted for 64% of its total revenue in the 2018 financial year.

Other toll revenue accounted for 23%, while 13% of total revenue are related to the GFIP.

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