Rand Water | Integrated Annual Report 2025

Consolidated Annual Financial Statements for the year ended 30 June 2025

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.Financial instruments (continued)

Counterparty risk

The Group's exposure to counterparty risk result from investment of Rand Water funds with various Board approved financial institutions and bonds. The Group's exposure is with well-established financial institutions with investment grade credit ratings assigned by reputable credit-rating agencies. The Group’s exposure to counterparty is managed within approved credit limits that are reviewed and approved by the Board annually. The counterparty limits are expressed as a percentage of the limits set of; credit ratings by rating agencies; or that of the counterparty’s Tier One Capital Reserves; or a percentage of the surplus cash. The Group limits its exposure to credit risk by: • investing only with Board approved counterparties with a minimum national long-term rating of "A+ (Zaf)" and short-term rating of 'F1 (Zaf)"; • diversification of counterparties to manage concentration risk; and • investing within the Board approved counterparty limits.

Definition of default

The Group considers financial assets held by various counterparties to be in default when there is an objective evidence or occurrence of the following events which become available to the Group without undue cost or effort:

Investments •

Counterparty under financial distress;

• Defaulting on interest and/or principal payments; • Probability that the counterparty will enter bankruptcy or placed under curatorship/ administration; and • Exposures which are outstanding for more than 90 days.

Exposure to concentration risk

Currently, the Group has high customer concentration risk on its potable water receivable class. The potable water debtors' book has the top 3 (three) customers constituting 76% (2024: 76%) of the total recognized revenue. These customers are all in the Gauteng region and are the Metropolitan municipalities. The Group is working towards diluting the percentage of the concentration by evaluating different available investment opportunities with a possibility of entering new markets. The organization also ensures that the customer relationships are not tied to just one person in the organization by keeping multiple points of contacts who will advocate for the Group needs.

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Rand Water | Integrated Annual Report 2025