Bloomberg News

S. Africa to Pay Road Agency’s Debt Amid Toll Project Delays

January 23, 2012

(Updates with Moody’s comment from fourth paragraph.)

Jan. 20 (Bloomberg) -- South Africa’s government will meet all the debt obligations of its roads agency following the indefinite postponement of its flagship toll project, the Department of Transport said.

The South African National Roads Agency has sold 20 billion rand ($2.5 billion) of bonds since 2008, half of which is government-backed, to build the Gauteng Freeway Improvement Project. It intended to use tolling revenue to repay debt and interest. Tolling, due to start next month, was postponed this week following public opposition, leading Sanral, as its known, to cancel its March bond auction.

“The debt will be paid,” Logan Maistry, spokesman for Transport Minister Sbu Ndebele, said in a phone interview. “As government, we are committed to meeting all obligations to all stakeholders. The Sanral board is exploring different modalities and will present its findings to the minister.”

Moody’s Investors Service yesterday placed Sanral on review for a possible rating cut, saying the decision to delay tolling will pressure cash flows. Sanral has enough cash to meet operating and debt servicing costs until June, Moody’s analyst Kenneth Morare said in a statement.

The state-owned agency’s bonds are rated A3, the fourth- lowest investment-grade assessment, by Moody’s, equal to South Africa’s rating. The company has 29.8 billion rand of bonds, 1.86 billion of which matures in 2013 and 1.34 billion rand in 2014, according to data compiled by Bloomberg.

Yield-Gap Widens

The extra yield investors demand to hold the agency’s 4.1 billion rand of 12.25 percent notes due 2028, rather than government securities of similar maturity, widened to 1.10 percentage point today, from 1.08 yesterday.

The yields on Sanral bonds probably don’t reflect investors’ perception of the risk of holding them as trading in the debt is illiquid, said Rashaad Tayob, who oversees about 800 million rand of fixed-income investments at Aeon Asset Management Ltd. in Cape Town. Tayob doesn’t hold Sanral bonds.

“We are seeing offers in the market, so people are looking to sell,” Tayob said in a phone interview. “But you’d have to be compensated for the increased risk. If they want to get out of them, they’d have to take that knock.”

Most investors are probably holding onto the bonds, expecting the government to provide cash to Sanral to service its debt, Tayob said.

“It is a fully state-owned enterprise so people would presume that there is an implicit guarantee even for that portion that is not state-backed,” he said. “Even so, it is unlikely that the tolling issue will be resolved until after the next election, so if you buy the debt now, you sit with that uncertainty for two years.”

Sanral’s communications manager, Priya Pillay, did not immediately respond to e-mailed requests for comment.

--Editors: Vernon Wessels, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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