The Ba1/Aa3.za 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/Aaa.za), 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
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
Very high debt level, in line with intensive capital investments
Limited prospects for business diversification and expansion
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).