AT FIRST glance, the loan Transnet secured from the French development bank seems like an ordinary financial transaction.
The facility, signed last week with Agence Française de Développement (AFD), amounts to R2,2bn, a relatively small sum considering that the parastatal aims to raise R30bn to partly fund its R80bn capital plans.
But on closer scrutiny, this loan demonstrates Transnet’s nifty timing, and highlights how successful it has been in accessing finance despite the international financial turmoil, which has virtually closed the credit taps for some of its state-owned counterparts.
Eskom is forced to turn to development financiers such as the World Bank and the African Development Bank for its capital investment funding needs. The South African National Roads Agency requires state guarantees to reassure wary investors so that they open their purses.
Transnet is an exception, borrowing solely on the strength of its balance sheet and investment- grade credit status. Its fund-raising formula is simple enough: low costs of debt, long tenure and diversified funding sources such as export credit, commercial bank loans and bonds. The deal with AFD, to be rolled out over 15 years, displays these qualities. Transnet negotiated for months with the French state-owned entity before committing.
Taking him at his word, acting CEO Chris Wells says the interest rate on the loan is low, reducing the costs of borrowing.
The company said, when it announced the loan on Wednesday, the currency-swap hedging technique would lock in the exchange rate with the rand strong against the euro.
It said the loan was valued at R2,2bn, suggesting that the à 200m loan was reached at R11 to the euro, and this had cost- effective benefits. It is not clear whether the company has concluded the currency swap yet.
Last December, the local currency hit R14 to the euro, and the loan would have translated into R2,8bn, the principal excluding interest payments.
Wells said last week rand strength against the euro lowered the cost of the debt.
He said the group did not take currency risk, using hedging strategy to protect itself from the volatile exchange rate as it fixed the costs of borrowing in rands.
But hedging can be risky. Being on the wrong side of a deal could carry enormous financial costs. Former Transnet subsidiary South African Airways incurred a multibillion-rand hedging loss a few years ago.
Transnet is waiting for an appropriate moment to pounce on the global debt market.
Wells said recently the group looked likely to issue its first bond in the first quarter next year as part of the global medium-term note programme to raise R5bn from US and European investors.
Last week, he said credit market conditions were good to issue into the international market. Investor appetite for emerging- market paper had turned.
Transnet faces challenges not related to access to capital, but to allegations that keep surfacing.
On Friday, the Mail & Guardian reported on a dossier compiled by disaffected senior Transnet staff alleging “ three current and former board members have links with companies to which the parastatal has awarded contracts worth more than R700m in the past three years”.
Two week ago, that newspaper reported senior managers at Transnet and Transnet Freight Rail were calling for the entire board to step down.
Business Report reported on Friday that Transnet was accused of procurement irregularities resulting in the company overspending R5,4bn on its capital expenditure programme.
The succession process, which began last year, appears to have stalled.
The company also has yet to fill the top three executive positions permanently, creating an impression of a leadership vacuum.
artwelld@bdfm.co.za