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01 Jul 2003
MOODY'S ASSIGNS A2.mx ISSUER RATING TO THE SISTEMA INTERMUNICIPAL PARA LOS SERVICIOS DE AGUA POTABLE Y ALCANTARILLADO (SIAPA)
New York, July 01, 2003 -- Moody's has assigned A2.mx (Mexico National Scale Rating)
and Ba2 (Global Scale, Local Currency) issuer ratings to the Sistema
Intermunicipal para los Servicios de Agua Potable y Alcantarillado (SIAPA).
The ratings reflect the system's economically strong and growing
service area, consisting of the four-city Guadalajara metropolitan
area; notable improvement in SIAPA's financial situation over
the last five years and the expectation that sound financial operations
will be maintained; and a positive trend in the entity's debt
profile, including a reduction in debt ratios and a significant
increase in the coverage of debt service by system net revenues.
SIAPA plans to fund its regular capital plan with its own revenues and
not with borrowing. The system could incur additional debt for
large scale capital projects, and the positive changes of recent
years should allow it to cover the associated costs without a significant
burden on its operations. Recent changes in SIAPA's legal
framework, involving its transformation from a state to an intermunicipal
system, may increase its rate-setting autonomy in the future,
but such a development is still uncertain.
SIAPA, the second largest municipal water system in Mexico,
provides water and sewer services to the inhabitants of the Guadalajara
metropolitan area. Its strength as a service provider is derived
in part from the area's growing and diversified economic base,
which involves the municipalities of Guadalajara, Zapopan,
Tlaquepaque, and Tonala. The city of Guadalajara has
a large industrial core and the surrounding area is continuing to grow
at a fast pace, especially in the areas of Zapopan (rated Aa3.mx
by Moodys) and Tonala (rated A3.mx by Moodys).
SIAPA provides potable water to 93% and sewer service to 89%
of the Guadalajara metropolitan area population. Reflecting current
trends, SIAPA should experience steady growth in its commercial
and residential customer base over the medium term. The system's
current water supply is sufficient to meet demand over the medium term,
and planning is under way for construction of another dam to assure that
long-term water needs of SIAPA are met.
In May 2002 the Jalisco state congress approved the dissolution of the
SIAPA de la Zona Metropolitana as a state entity and the creation of the
new SIAPA, a public intermunicipal entity, under an agreement
involving the municipalities of the Guadalajara metropolitan area.
The Board of Directors of the new SIAPA is comprised of two representatives
from each of the four member cities, and three from the Jalisco
state government. The new SIAPA gained the authority to approve
its own expenditure budget and capital plan, but did not gain autonomy
in rate setting. Although SIAPA collects its water fees directly
from users, water rates are a part of each municipality's
revenue budget, for which approval by the state congress is required.
These changes in legal structure, while positive, still limit
the scope of the entity's decision-making power.
In earlier years, SIAPA's ability to achieve a sound financial
position was challenged by the inadequate increases in water fees it was
allowed and the relatively low collection rates it realized, due
to its inability to impose consequences on non-paying users.
In the last five years, however, SIAPA has reported an improving
financial trend that is expected to continue.
The system's revenue picture has been improving steadily,
with total revenues nearly doubling from Ps.760 million in 1998
to Ps.1.5 billion in 2002. The increase has been
driven by a change to metered water service from fixed rates (74%
metered in 1998 compared to 88% in 2003), an increase in
collection of sewer fees and, most recently, the introduction
of new user fees for infrastructure maintenance and sewage treatment.
Financial results have shifted from a deficit of almost 30% of
revenue in 1998 to a surplus of 10% in 2002. Conservatively
cast pro forma estimates indicate that SIAPA should be able to maintain
healthy finances with reasonable increases in user fees. SIAPA
retains a high level of flexibility through its planned capital expenditures
for the year, which could be curtailed in the event of a revenue
SIAPA's debt profile has improved notably in the last six years
with increases in its revenues, refinancing of its debt to UDIs
in the mid-1990s and, more recently, successful efforts
to reduce the interest rates charged for some of its outstanding credits.
The debt service share of expenditures has improved significantly,
dropping from 40% in 1998 to 17% last year. Coverage
of debt service by net revenues before depreciation was a strong 3.5x
If SIAPA participates with the state in the construction of six planned
sewage treatment plants, its debt load would increase. Given
its current ability to generate net revenues to cover debt service,
the likelihood of future revenue growth and the new debt level that is
being discussed, the increased debt level could be managed.
Moody's Mexico National Scale ratings are opinions of the relative
creditworthiness of issuers and issues within Mexico. The Moody's
Global Scale rating for borrowings in local currency allows investors
to compare this issuer to all other issuers in the world rather than merely
in Mexico. It incorporates all Mexico-related risks,
including the potential volatility of the Mexican economy. For
comparative purposes, Moody's Global Scale, Local Currency
rating for domestic debt issued by the Mexican government is Baa1.
Senior Vice President
International Subsovereigns Grou
Moody's Investors Service
VP - Senior Credit Officer
International Subsovereigns Grou
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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