Wrap Text
TCTA Replaces Fitch Ratings as rating agency on its projects and Moody’s Initiates Ratings on 5 TCTA Projects
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.
1. TCTA REPLACES FITCH RATINGS AS THE RATINGS AGENCY FOR ITS PROJECTS;
2. MOODY’S INITIATES RATINGS ON 5 TCTA PROJECTS: ASSIGNS Ba1/NP AND Aa2.za/P-1.za;
NEGATIVE OUTLOOK
TCTA Replaces Fitch Ratings as rating agency on its projects
TCTA’s SENS Announcement of 20 February 2019 titled: Fitch Affirms 5 TCTA Projects at ‘AA+(zaf)’;
Outlooks Stable has reference.
As stated therein, TCTA embarked on a process of replacing Fitch Ratings as its ratings agency due to the
FSCA’s deregistration of Fitch Ratings for SOEs and sovereign ratings from 31 December 2019. This process
has culminated with the replacement of Fitch Ratings by Moody’s Investor Services as its ratings agency.
Lenders whose loan agreements required their consultation with regards to the change in ratings agency,
were consulted about the change and no objections were received.
The Fitch Ratings for TCTA’s projects will terminate as at 15 November 2019.
Moody’s Initiates Ratings on 5 TCTA Projects: assigns Ba1/NP and Aa2.za/P-1.za; negative outlook
Moody’s Investors Service announced on 14 November 2019 that it assigned first time ratings on 5 TCTA
Projects at:
Long-Term Short-Term
Global Scale: Ba1 NP
National Scale: Aa2.za P-1.za
Outlook: Negative
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 projects are funded through long term loans with liquidity support from revolving credit facilities and
unlisted Commercial Paper Programs.
Outstanding amounts on Commercial Paper at 12 November 2019 were:
- BWP: R nil of a R450 million Program;
- VRESAP: R275 million of a R500 million Program;
- MMTS-2: R311 million of a R400 million Program;
- KWSAP: R nil of a R500 million Program; and
- MCWAP: R nil or a R nil Program
TCTA’s Vaal River System Water Resources Development Projects (VRS) Incorporating the Lesotho
Highlands Water Project (LHWP) and Acid Mine Drainage (AMD) issues explicitly government guaranteed
debt and is not rated.
New Moody’s National Scale Ratings compared to old Fitch National Scale Ratings
Project Moody’s Rating Fitch Rating
BWP Aa2.za/P-1.za AA+(zaf)/F1(zaf)
VRESAP Aa2.za/P-1.za AA+(zaf)/F1(zaf)
MMTS-2 Aa2.za/P-1.za AA+(zaf)/F1(zaf)
KWSAP Aa2.za/P-1.za AA+(zaf)/F1(zaf)
MCWAP Aa2.za/P-1.za AA+(zaf)/F1(zaf)
Nyiko Mageza, TCTA Sponsor +27 12 683 1334, nmageza@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
15 November 2019
The statement from Moody’s is quoted below:
https://www.moodys.com/research/Moodys-assigns-Ba1NP-and-Aa2zaP-1za-issuer-ratings-to-five--PR_413326
Rating Action: Moody's assigns Ba1/NP and Aa2.za/P-1.za issuer ratings to five Trans-Caledon
Tunnel Authority projects; negative outlook
14 Nov 2019
London, 14 November 2019 -- Moody's Investors Service (Moody's) has today assigned first time Ba1 long-term global scale issuer
ratings, NP short-term global scale issuer ratings, Aa2.za long-term national scale issuer ratings and P-1.za short-term national
scale issuer ratings to the following five projects of the Trans-Caledon Tunnel Authority (TCTA):
- 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 is 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, Baa3 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
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 Ba1/NP and Aa2.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, notably
Eskom (Eskom Holdings SOC Limited, B3 negative), 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.
WHAT COULD CHANGE THE RATING UP/DOWN
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 are 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 published in June 2018. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory
disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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
credit rating action on the support provider and in relation to each particular credit 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
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issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action,
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Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or
rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit
rating.
Christopher Bredholt
VP-Sr 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
Releasing Office:
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
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