The credit profile of East Rand Water Care Company (ERWAT, Ba1 stable) reflects the company’s close financial and operational links with its support provider, the City of Ekurhuleni (Baa3 stable), which guaranteed 91% of the company’s debt as of 30 June 2018, as well as its legal status as a public-sector entity. The profile also reflects the company’s good financial performance, track record of adhering to budget plans and its deteriorating liquidity.
ERWAT Credit Strengths
- Strong support and close supervision from the City of Ekurhuleni
- Public legal status and close integration with City of Ekurhuleni
- Strong financial performance and conservative governance and management
ERWAT Credit Challenges
- Very high debt, though this is likely to continue to decline over the next three years
- Weakening liquidity
- Limited prospects for business diversification and expansion
ERWAT Rating Outlook
The stable rating outlook reflects our expectation that ERWAT will maintain its good financial performance and its debt will continue to decline gradually over the next three years, as its capital expansion plan will be financed by internally generated funds and capital transfers from its support provider.