Wrap Text
TCTA: Moody's downgrades Trans-Caledon Tunnel Authority projects to Ba3/Aa3.za; outlook remains negative
Trans-Caledon Tunnel Authority (TCTA)
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 Ba3/Aa3.za; outlook remains negative
On 24 November 2020, Moody's Investors Service downgraded to Ba3 from Ba2 the long-term global scale
issuer ratings and affirmed the Aa3.za 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 global scale issuer ratings reflects the downgrade in the Government of
South Africa's sovereign bond rating to Ba2 from Ba1.
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
27 November 2020
The statement from Moody’s is quoted below:
https://www.moodys.com/research/Moodys-downgrades-Trans-Caledon-Tunnel-Authority-projects-to-Ba3-affirms--
PR_436260
Rating Action: Moody's downgrades Trans-Caledon Tunnel Authority
projects to Ba3, affirms Aa3.za national scale ratings; outlook remains negative
24 Nov 2020
London, 24 November 2020 -- Moody's Investors Service (Moody's) has today downgraded to Ba3 from
Ba2 the long-term global scale issuer ratings of five Trans-Caledon Tunnel Authority (TCTA) projects.
Concurrently, Moody's has affirmed the Aa3.za long-term national scale issuer ratings, 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 (South Africa,Government
of Ba2 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.
The rating actions follow Moody's downgrade of the Government of South Africa's long-term issuer ratings
to Ba2 from Ba1 on 20 November 2020. For additional information on the rationale for the sovereign
rating action,
Please refer to the related announcement: https://www.moodys.com/research/--PR_436182 .
A full list of affected ratings is provided towards the end of this press release.
RATINGS RATIONALE
Today's downgrade of the long-term global scale issuer ratings reflects the downgrade of the Government
of South Africa's long-term ratings from Ba1 to Ba2, given the TCTA projects' close operational and
financial linkages with the Government of South Africa and TCTA's public policy mandate with limited
autonomy.
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 Ba3/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 views the TCTA projects as having low exposure to the impact of COVID-19, given their status
as state-owned entities undertaking projects of national importance (particularly in the context of the
current health pandemic), tariff framework providing for full cost recovery, available liquidity, and the
contractual undertaking of DWS to step in and meet each TCTA project's debt obligations in the event of
TCTA's failure to perform.
TCTA reports demand for water has remained consistent throughout 2020, and in any event, the annual
tariff setting framework insulates TCTA from changes in demand.
Owing to the coronavirus, and a focus on tariff affordability, the Minister has not approved TCTA's 2020/21
tariff increases. The TCTA projects continue to bill DWS using last year's tariffs and should tariff increases
be approved for any project, corrective invoices will be issued. Whilst Moody's does not expect the
temporary tariff freeze to pose a material liquidity strain, if there were liquidity pressure on any TCTA
project, Moody's expects that DWS would work constructively to support the projects as it has done in
the past (for example, through a reprofiling of the annual income or funding support).
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 income expressed as 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 COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The Global Scale Credit Ratings (GSRs) 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 global
scale 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.
The National Scale Ratings (NSRs) would face upward or downward pressure if the corresponding GSR
is upgraded or downgraded, unless this is in conjunction with a sovereign rating action that results in a
recalibration of the South African national scale with an offsetting impact on NSRs. In addition, the NSR
may be repositioned upwards (downwards) if South Africa's sovereign is downgraded (upgraded) and the
map is revised accordingly, but the corresponding GSR has not changed as a result of the sovereign
action.
LIST OF AFFECTED RATINGS
Downgrades:
..Issuer: TCTA - Berg Water Project
.... LT Issuer Rating, Downgraded to Ba3 from Ba2
..Issuer: TCTA - Komati Water Scheme Augmentation Project
.... LT Issuer Rating, Downgraded to Ba3 from Ba2
..Issuer: TCTA - Mokolo Crocodile Water Augmentation Project
.... LT Issuer Rating, Downgraded to Ba3 from Ba2
..Issuer: TCTA - Mooi Mgeni Transfer Scheme Phase 2
....LT Issuer Rating, Downgraded to Ba3 from Ba2
..Issuer: TCTA - Vaal River Eastern Sub-System Augmen Project
.... LT Issuer Rating, Downgraded to Ba3 from Ba2
Affirmations:
..Issuer: TCTA - Berg Water Project
.... ST Issuer Rating, Affirmed NP
....NSR ST Issuer Rating, Affirmed P-1.za
....NSR LT Issuer Rating, Affirmed Aa3.za
..Issuer: TCTA - Komati Water Scheme Augmentation Project
.... ST Issuer Rating, Affirmed NP
.... NSR ST Issuer Rating, Affirmed P-1.za
.... NSR LT Issuer Rating, Affirmed Aa3.za
..Issuer: TCTA - Mokolo Crocodile Water Augmentation Project
.... ST Issuer Rating, Affirmed NP
.... NSR ST Issuer Rating, Affirmed P-1.za
.... NSR LT Issuer Rating, Affirmed Aa3.za
..Issuer: TCTA - Mooi Mgeni Transfer Scheme Phase 2
.... ST Issuer Rating, Affirmed NP
.... NSR ST Issuer Rating, Affirmed P-1.za
.... NSR LT Issuer Rating, Affirmed Aa3.za
..Issuer: TCTA - Vaal River Eastern Sub-System Augmen Project
.... ST Issuer Rating, Affirmed NP
.... NSR ST Issuer Rating, Affirmed P-1.za
.... NSR LT Issuer Rating, Affirmed Aa3.za
Outlook Actions:
..Issuer: TCTA - Berg Water Project
....Outlook, Remains Negative
..Issuer: TCTA - Komati Water Scheme Augmentation Project
....Outlook, Remains Negative
..Issuer: TCTA - Mokolo Crocodile Water Augmentation Project
....Outlook, Remains Negative
..Issuer: TCTA - Mooi Mgeni Transfer Scheme Phase 2
....Outlook, Remains Negative
..Issuer: TCTA - Vaal River Eastern Sub-System Augmen Project
....Outlook, Remains Negative
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
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections
Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating
Symbols and Definitions can be found at:
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides
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For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of
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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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