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Rating Action:

Moody's assigns negative outlook to SANRAL's ratings, affirms Baa3/A3.za ratings

19 Jan 2015

Johannesburg, January 19, 2015 -- Moody's Investors Service has today changed to negative from stable the outlook on South African National Roads Agency Limited's (SANRAL) issuer rating and at the same time affirmed the Baa3/P-3 (global scale, local and foreign currency) and A3.za/P-2.za (South African national scale) ratings.

Moody's has also lowered SANRAL's Baseline Credit Assessment (BCA) to b2 from ba3.

RATING RATIONALE

The change in outlook and lower BCA reflect Moody's assessment of the decrease in SANRAL's financial strength following weaker than expected e-toll revenue collection from the Gauteng Freeway Improvement Project (GFIP) scheme and SANRAL's plans to increase debt issuance.

Non-payment of e-tolls has increased following a decision by the Province of Gauteng to establish a panel to assess the impact of e-tolls in doing business in the province, which sparked speculation among the general public that the e-toll project may be abandoned. This caused e-toll revenue collections to drop by 38% from July to November 2014, which in turn led SANRAL to revise downward its expected e-toll revenue for the fiscal year 2014-15 to ZAR907 million, against ZAR1.4 billion previously.

As e-toll revenue was planned to be the main contributor towards the reduction of borrowing requirements, as well as help improve cash flows, the lower than expected revenues will likely lead to an increase in SANRAL's debt level. Moody's anticipates that SANRAL's debt will increase more than expected and reach ZAR44.1 billion by 31 March 2015, from ZAR39.6 billion at 31 March 2014.

Moody's affirmation of SANRAL's ratings at Baa3/A3.za reflects the explicit guarantee on 74% of its total debt and implied guarantee on the remaining 26% from the national government as of 31 December 2014. In addition, SANRAL could legally enforce e-toll payments through the SANRAL Act no 7 of 1998 and Transport and Related Matters Amendment Act of 25 September 2013, although these are yet to be implemented. Moody's will continue to monitor e-toll collections in the coming months as well as SANRAL's cash flow and any potential impact on its ratings.

SANRAL is a public company, wholly owned by the Republic of South Africa, with the Minister of Transport representing the government as the sole shareholder. The company remains a key strategic asset for the central government, which has mandated SANRAL to develop, finance and manage the national road infrastructure in South Africa.

WHAT COULD CHANGE THE RATING UP/DOWN

A stabilisation of the outlook would require evidence of SANRAL's capacity to generate strong e-toll revenue collections. A structural improvement in the company's financial position, leading to lower than anticipated borrowing needs, could also apply upward pressure.

The inability to generate sufficient e-toll revenue, leading to deteriorating cash flows and growing borrowing needs, would apply downward rating pressure. Any indication of a loosening of the sovereign's willingness to support SANRAL would likely lead to a downgrade.

The principal methodology used in this rating was Government-Related Issuers published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Daniel Mazibuko
Associate Analyst
Sub-Sovereign Group
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service South Africa (Pty) Ltd.
The Forum
2 Maude Street
2196 Sandton
Johannesburg
South Africa
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns negative outlook to SANRAL's ratings, affirms Baa3/A3.za ratings
No Related Data.
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