Wrap Text
TCTA: Moody's downgrades TCTA projects to
Ba2/Aa3.za, outlook remains negative
Trans-Caledon Tunnel Authority (TCTA)
WSP4 (LHWP) ZAG000020009
WSP5 (LHWP) ZAG000020017
As established by Notice No 2631 in Government Gazette No 10545 of 12 December 1986, which was
replaced by Notice No 277 in Government Gazette No 21017 of 24 March 2000 (the Notice of Establishment).
A Schedule 2 Public Finance Management Act No. 1 of 1999 (PFMA) entity.
Moody's downgrades Trans-Caledon Tunnel Authority projects to Ba2/Aa3.za; outlook remains
negative
On 31 March 2020, Moody's Investors Service downgraded to Ba2 from Ba1 the long-term global scale
issuer ratings and downgraded to Aa3.za from Aa2.za the long-term national scale issuer ratings of five
Trans-Caledon Tunnel Authority (TCTA) projects. Concurrently, Moody's has affirmed the Not Prime (NP)
short-term global scale issuer ratings and P-1.za short-term national scale issuer ratings.
The projects are:
- Berg Water Project (BWP);
- Vaal River Eastern Sub-System Augmentation Project (VRESAP);
- Mooi-Mgeni Transfer Scheme phase 2 (MMTS-2);
- Komati Water Scheme Augmentation Project (KWSAP); and
- Mokolo Crocodile River (West) Water Augmentation Project (MCWAP)
The outlook on the ratings remains negative.
The downgrade of the long-term issuer ratings reflects the downgrade in the Government of South Africa's
sovereign bond rating to Ba1 from Baa3
The projects are funded through long term loans with liquidity support from revolving credit facilities and
unlisted Commercial Paper Programs.
Darshana Jeeva, TCTA Sponsor +27 12 683 1311, djeeva@tcta.co.za
Queries - Alicia Keyser , TCTA Project Finance +27 12-683 1200, akeyser@tcta.co.za
Media Queries - Wanda Mkutshulwa, Head of Communications +27 12 683 1378, wmkutshulwa@tcta.co.za
6 April 2020
The statement from Moody’s is quoted below:
https://www.moodys.com/research/Moodys-downgrades-Trans-Caledon-Tunnel-Authority-projects-to-
Ba2Aa3za-outlook--PR_421128
Rating Action: Moody's downgrades Trans-Caledon Tunnel Authority projects
to Ba2/Aa3.za; outlook remains negative
31 Mar 2020
London, 31 March 2020 -- Moody's Investors Service (Moody's) has today downgraded to Ba2 from Ba1 the
long-term global scale issuer ratings, and downgraded to Aa3.za from Aa2.za the long-term national scale
issuer ratings of five Trans-Caledon Tunnel Authority (TCTA) projects. Concurrently, Moody's has affirmed the
Not Prime (NP) short-term global scale issuer ratings and P-1.za short-term national scale issuer ratings. The
five TCTA projects rated by Moody's are:
- TCTA - Berg Water Project
- TCTA - Vaal River Eastern Sub-System Augmentation Project
- TCTA - Komati Water Scheme Augmentation Project
- TCTA - Mooi Mgeni Transfer Scheme Phase 2
- TCTA - Mokolo Crocodile Water Augmentation Project
The outlook on the ratings remains negative.
TCTA is a 100% state-owned enterprise mandated with financing and implementing bulk raw water
infrastructure projects of national importance. It is an agency of South Africa's (Government of South Africa,
Ba1 negative) National Department of Water and Sanitation (DWS). Each rated project is implemented on
behalf of DWS and backed by contractual undertakings of DWS to step in and meet the project's debt
obligations. These undertakings bind the National Revenue Fund in accordance with section 70 of the Public
Finance Management Act No. 1 of 1999.
RATINGS RATIONALE
Today's downgrade of the long-term issuer ratings reflects the downgrade in the Government of South Africa's
sovereign bond rating to Ba1 from Baa3, given the TCTA projects' close operational and financial linkages with
the Government of South Africa and TCTA's public policy mandate with limited autonomy. For additional details
on the rationale for the sovereign rating action, please refer to the press release:
https://www.moodys.com/research/--PR_420630 .
Moody's views the projects as government-related issuers (GRIs) and the ratings reflect a top-down notching
from the Government of South Africa's rating based solely on support. Moody's considers it is not possible to
meaningfully assess the TCTA projects' credit profile on a standalone basis, given the close operational and
financial linkages with the Government of South Africa and TCTA's public policy mandate with limited
autonomy.
The Ba2/NP and Aa3.za/P-1.za ratings reflect the following credit strengths: (1) each TCTA project's status as
a wholly state-owned enterprise undertaking water projects of national importance on directive from the
Minister of Human Settlements, Water and Sanitation; (2) contractual undertaking of DWS to step in and meet
each TCTA project's debt obligations in the event of TCTA's failure to perform or early termination of the
project; (3) tariff framework providing for full cost recovery from end users to ensure project debt can be
repaid, updated annually to account for changes in water demand, funding costs, inflation, regulatory
environment, amongst others.
The ratings also reflect the following credit challenges: (1) the lack of an explicit on-demand guarantee from
the DWS or National Treasury, reflected in the one notch rating differential between the TCTA projects and the
Government of South Africa; (2) the arrangements setting out DWS (and, by extension, National Treasury in
the event DWS has insufficient funds) obligations to lenders have not been tested, and may be subject to
delays; (3) broader stress at South African state-owned enterprises, which may cause the government to take
a more selective approach to the provision of support; and (4) the projects are exposed to a degree of liquidity
risk, albeit manageable in Moody's view.
Moody's highlights the following linkages between TCTA projects and the government: (1) TCTA's activities as
an agency of DWS are bound by directives issued by the Minister and its operational and financial discretion is
restricted under its Notice of Establishment; (2) the rated projects pass all operating risks to DWS, which
undertakes the operations directly as part of the broader national water network; (3) each project is entitled to
receive a tariff designed to ensure it can meet its debt obligations, and the tariff is revised on an annual basis
and payable by DWS irrespective of whether DWS collects payments from the end water users or passes on
increases in the tariff; and (4) each project's business model is not designed to create profits, surplus or
reserves as the tariff is set to ensure break-even.
RATIONALE FOR NEGATIVE OUTLOOK
The outlook is negative, reflecting the negative outlook on the Government of South Africa's sovereign bond
rating.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The global scale ratings follow the Government of South Africa's sovereign bond rating, and a
downgrade/upgrade of the sovereign bond rating would result in a downgrade/upgrade of the ratings on the
TCTA projects. Additionally, Moody's could downgrade the ratings of the TCTA projects if there were signs of
DWS and/or National Treasury being unable or unwilling to provide timely support to the projects in periods of
financial stress.
ISSUER PROFILE
The projects comprise water-storage dams and transport pipelines together with associated infrastructure. The
projects are implemented by TCTA, a 100% state-owned enterprise mandated with financing and
implementing bulk raw water infrastructure projects, on behalf of South Africa's National Department of Water
and Sanitation (DWS). TCTA is listed as a "major public entity" under Schedule 2 of South Africa's Public
Finance Management Act 1 of 1999. TCTA's mandate is set out in (i) the Notice of Establishment in 1986
(Notice 2631 in Government Gazette No. 10545, dated 12 December 1986) and amended in 2000 (Notice 277
in Government Gazette No. 21017), and (ii) directives issued from the Ministry from time to time in terms of
Section 103(2) of the National Water Act (Act No. 36 of 1998). Moody's considers the projects to have a single
credit profile, as each one benefits from contractual undertakings of DWS to step in and meet its debt
obligations.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Government-Related Issuers Methodology published in
February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1186207. Alternatively, please see the Rating Methodologies 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 May 2016 entitled "Mapping National Scale Ratings from Global Scale
Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that
particular point in time. For information on the historical default rates associated with different global scale
rating categories over different investment horizons, please see
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309 .
REGULATORY DISCLOSURES
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Christopher Bredholt
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Kevin Maddick
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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Moody's Investors Service Ltd.
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