The Ba1/ global and national scale long-term issuer ratings of East Rand Water Care Company (ERWAT) reflect its close financial and operational links with its support provider, Ekurhuleni Metropolitan Municipality (Baa3/, which guaranteed 92% of the company’s debt as at 31 June 2016. ERWAT ratings are also supported by the company’s legal status as a public-sector entity. ERWAT operates under a clear public policy mandate from Ekurhuleni Metropolitan Municipality. The ratings also reflect its adequate financial performance and history of satisfactory budgetary results.

Very high debt level, albeit in line with ERWAT’s sizeable capital expenditure plan

Exhibit 1: Net Direct and Indirect Debt/Operating Revenue (%)

Source: Moody’s Investors Service

Credit Strengths

  • High degree of support and supervision from Ekurhuleni Metropolitan Municipality
  • Close integration with Ekurhuleni, which also guarantees most of ERWAT’s debt
  • Public legal status
  • Satisfactory financial performance
  • Relatively conservative governance and management
  • Strong liquidity profile

Credit Challenges

  • Very high debt level, in line with intensive capital investments
  • Limited prospects for business diversification and expansion

Rating Outlook

The negative outlook on ERWAT’s rating mirrors the action taken on the rating of its support provider, Ekurhuleni Metropolitan
Municipality (Baa3/P-3 NEG).

Download Full Report – Moody’s Credit Opinion on ERWAT