E-tolls plan will 'return confidence' to Sanral bonds

The government’s plan to top up revenue from freeway tolls and impose stricter measures to enforce payment will pave the way for Sanral to sell bonds at better rates.

The government will pay the South African National Roads Agency SOC Ltd. (Sanral) as much as R700 million to make up for a discount offered to motorists on outstanding tolls and a reduction in charges, Finance Minister Nhlanhla Nene said on Wednesday.

Drivers won’t be able to renew car registrations unless their bills are paid, Deputy President Cyril Ramaphosa said. Yields on notes sold by Sanral and due September 2025 fell seven basis points on Wednesday to 8.62%.

“Investors will be looking for a feel that it’s going to be accepted by consumers,” Simon Howie, head of South African credit at Investec Asset Management, which owns Sanral bonds, said. “Once there is that certainty, it can be positive enough to make them access the market more easily.”

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Sanral started electronic road tolling in Gauteng in December 2013 to help pay for the R20 billion upgrade of 201km of roads. Many drivers objected to the tariffs, saying they were unaffordable and should be paid for out of taxes.

The imposition of the fees was delayed for more than two years because of opposition from unions and other groups, and several legal challenges.

The agency owes R71.7 billion in outstanding bonds, interest and loans, according to data compiled by Bloomberg, and only managed to raise R400 million of a targeted R600 million when it held a debt sale in February. Sanral was waiting for the government’s probe before it issued more bonds, Chief Executive Officer Nazir Alli said earlier this month.

“Now that there is certainty, as the deputy-president said, confidence will return to the Sanral bonds,” he told reporters after Ramaphosa’s announcement. The agency has yet to decide how much it will try to raise in the next auction, Alli said.

The yield on Sanral’s R4.2 billion of state-guaranteed bonds due September 2025 rose 12 basis points this year to May 19, compared with a 158 basis-point drop in the JPMorgan Corporate EMBI Infrastructure Sector Blended Yield.

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The measures announced by the government won’t increase compliance with the toll system, which currently stands at about 20% of motorists, Wayne Duvenhage, chairman of Opposition to Urban Tolling Alliance, said. The group has encouraged drivers not to pay the fees.

“Even if they increase compliance from 20% to 45%, the system will fail,” Duvenhage said. “Our research has shown that there has to be an 80% compliance rate for an urban tolling system such as this to work.”

The government’s measures have given investors certainty that Sanral is in good shape, Nene said.

“We believe that Sanral will be able to go out into the market and raise money,” said Ramaphosa.

- With assistance from Mike Cohen in Cape Town.

- Bloomberg