Fitch Revises NamPort’s Outlook to Positive

Fitch Ratings has revised the outlook on Namibian Ports Authority’s National Long-Term rating to positive from stable. The agency has affirmed NamPort’s National Long-term rating at ‘A-(zaf)’ and National Short-Term rating at ‘F2(zaf)’.
The revision of the outlook to positive reflects the expected strengthening of the links between NamPort and its sole shareholder, the Namibian sovereign (‘BBB-’/’BBB’/’AA-(zaf)’/Stable), given that the state plans to provide guarantees for the debt-funded portion of the capacity expansion project and maintain other forms of financial support.
NamPort’s rating continues to benefit from strong parental support as Fitch considers the legal, operational and strategic ties between the company and its sole shareholder to be strong. The company is rated on a top-down basis from its shareholder, and Fitch assesses that NamPort’s
standalone rating would be significantly below the support-driven rating level. NamPort remains a strategic asset to the Namibian economy, operating the country’s two ports at Walvis Bay and Luderitz. Fitch believes NamPort is likely to play a critical role in infrastructure development given its planned port expansion project of N$3 billion in the next three years.
The scale of the port expansion is, in Fitch’s view, an ambitious project with minimal ‘phasing-in’ to limit the downside risks in a scenario of weaker traffic volumes. However, Fitch believes the expansion is required as NamPort is operating at 337,000 twenty-foot equivalent units (TEU’s) which is close to its current optimal utilisation capacity of 355,000 TEU’s. Without the additional capacity NamPort is unlikely to be able to attract new business and sustain growth.
The investment growth will place strain on NamPort’s standalone credit metrics and Fitch forecast funds from operations (FFO) adjusted net leverage to increase to around 7x by FY16 from 1.1x in FY12. Fitch expects FFO interest coverage to decline to about 2x in FY16 from 5.6x in FY12. At the same time, it anticipates timely financial support from the Namibian sovereign, namely in the form of debt guarantees (88% of total estimated project costs), additional equity (8% of N$3 billion) and direct state funding of some capex projects. NamPort is currently building up the cash reserves to finance a portion of the capex (N$110 million or 4%).
Materialisation of the planned state guarantees for NamPort’s additional debt to fund its expansion project along with the announced equity injections and other forms of state financial support would be positive for the rating. A positive rating action on Namibia’s sovereign rating would result in a positive rating action for NamPort, providing that the strength of the parent-subsidiary linkage does not weaken. Negative: The current Rating Outlook is Positive. As a result, Fitch’s sensitivities do not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating downgrade. However, the Positive Outlook may be stabilised if the expected strengthening of the links between NamPort and the state does not materialise. The downgrade of Namibia’s sovereign rating by several notches may also be negative for the company’s ratings.