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Maiden Fitch rating for Namwater

Global ratings agency, Fitch assigned Namibia Water Corporation Ltd (NamWater) a long-term foreign currency Issuer Default Rating (IDR) of ‘BBB-’ and a long-term local currency IDR of ‘BBB’. Both Outlooks are stable.
Fitch Ratings agency said it provides value beyond the rating through objective and balanced credit opinions, research and data.

About Namwater, Fitch said last week, “although we expect capex to lead to negative free cash flow and increased leverage, the forecast metrics will remain commensurate with the ratings.”
Added Fitch, we view the company’s links with its parent, the government of Namibia (Long-term local currency IDR, BBB/Stable; Long-term foreign currency IDR, BBB-/Stable) as strong, supported by significant tangible support in the form of access to uncompensated raw water and contribution to capex.
However they noted that the lack of strong legal links like guarantees for NamWater’s debt means the utility is rated one notch below the sovereign rating.
“As such, NamWater’s standalone profile drives the rating. The Long-term foreign currency IDR is constrained by the sovereign rating,” Fitch explained.
As for the key rating drivers, Fitch said NamWater operates on a full cost-recovery basis as guided by the NamWater Act since the company’s inception in 1997. Tariff increases are approved annually by the government, but this also creates exposure to political risk.
“The utility asset base is valued lower than replacement cost which limits the company’s ability to fund all capex through tariffs. The government provides funding for projects that are not economically viable through capital contribution, and some commercial customers also contribute to capex in full for their capacity reservation,” Fitch added.
Currently the water utility serves roughly 28,000 customers and 209 large bulk connections on a wholesale basis. The five largest bulk customers comprise 37% of total operating revenues. The City of Windhoek is the single largest customer, representing 24% of total operating revenues. Government-related entities constitute the bulk of the company’s customers.

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