As the embattled South African National Roads Agency lost its CEO, Nazir Alli, the national treasury told parliamentarians on Tuesday that Sanral would only be able to survive for another six months and only through “major sacrifices”.
For the next six months Sanral could exist by “scraping” together resources intended for other purposes and using them to make sure that it meets its immediate finanicial obligations — “but only through major sacrifrices and for a very short period”, said transport department director general Lungisa Fuzile.
He was speaking at a briefing on the treasury’s strategic plan to Parliament’s standing committee on finance.
The government would not allow Sanral to collapse, nor was it able to walk away from Sanral’s liabilities as the legislation establishing agency included a strong implicit guarantee of its debts, he said. This was reinforced by government’s explicit commitments to back Sanral’s debt, said Fuzile.
The decision by Moody’s to downgrade Sanral’s debt by two notches, which the state had warned of in court proceedings last week, was “very serious”, he said. Not only did it substantially raise Sanral’s cost of borrowings, but it also brought Sanral bonds very close to a sub-investment grade rating.
If an financial instrument, such as a bond, is rated as sub-investment grade they are deemed much more risky.
This meant , said Fuzile, that many of Sanral’s investors are now taken to the legal limits of the types of investments they are able to hold on behalf of their clients.
“This is a crisis environment,” said deputy finance minister Nhlanhla Nene after the briefing.
The Cabinet committee was seeking to ensure that Sanral was sustainable beyond the next six months and is treating this as an urgent matter, he said.
According to treasury, the government has guaranteed 56% of Sanral’s debt, approximately R21.4-billion of a total debt of R37.9-billion.
The department acknowledged concerns around the impact of Sanral’s debt downgrade on other state-owned entities but is confident the other SOE’s, on a stand-alone basis, had solid financial metrics.
However, opposition MPs were very critical of treasury’s reluctance to deal with the Sanral issue in greater detail.
The department had warned early in the week that it wanted to focus on issues relevant to its strategic plan, rather than deal with a matter that was part of the ongoing court proceedings and being addressed by Cabinet.
The hearing was a missed opportunity to deal with the worries regarding the state of the SOE debt market, in the wake of Sanral crisis, said Congress of the People MP Nick Koornhof.
Democratic Alliance MP Tim Harris called on Finance Minister Pravin Gordhan to explain the fiscal consequences on the country with the delay of the e-toll project, and to outline alternative options that will minimise the cost to the taxpayers.