Ratings agency Moody’s Investors Service has placed Transnet’s credit ratings on review for a downgrade, saying that it is concerned about the entity’s weakening liquidity position and high refinancing risk.
Transnet has debt maturities of about R10bn from December to March 2024, including the November R4.6bn short-term bond that was rolled over by the Public Investment Corporation. Repayment is due in March.
Moody’s action on Monday reflects Transnet’s dangerously lopsided capital structure. It forces finance minister Enoch Godongwana, who is already facing competing demands from other state-owned enterprises (SOEs), into a balancing act of maintaining fiscal discipline and advancing the government’s strategic economic objectives.
“As of June 2023, its available liquidity facilities have reduced to R4.1bn because R7.2bn of the previous R13.3bn facilities have become uncommitted. Moody’s expects this has reduced further following the repayment of a R7bn local bond on November 6, which was only partially refinanced with a new short-term bond of R4.6bn,” the agency said in a statement.
“Moody’s expects existing sources of liquidity will only marginally cover these maturities, and therefore the company is dependent on raising new financing in short order.
“The company also has a concentrated maturity profile in the following years with a total of R96bn of debt maturing until March 2028.”
Sitting on a R130bn debt pile in March, Transnet recently lost senior members of its executive, including Portia Derby as CEO and Nonkululeko Dlamini as CFO. It expects to fill these vacancies by February.
The enterprise was dealt a blow when the Treasury refused a bailout to partially pay off its debt and to fund its turnaround plan. Board chair Andile Sangqu said previously the entity will be unable to implement its turnaround plan without a cash injection from the government.
“Moody’s understands the company is working on several new financing initiatives, but believes it will become increasingly difficult to access new financing without government support,” said the agency.
“Transnet’s operational performance has continued to weaken in 2022/23, and the turnaround plan that was submitted to the government in October explicitly requires an equity injection to fund the company’s capex backlog and sustainably improve operations.”
Limited support
However, Moody’s expects the government to provide some support for Transnet considering Godongwana’s comments during the medium-term budget policy statement.
Godongwana said the government will continue to work with Transnet to ensure it meets its immediate debt obligations.
“However, there has been no tangible support framework announced thus far, and the uncertainty around the materiality and timeliness of the support has heightened liquidity and refinancing risk for Transnet,” said Moody’s.
Meanwhile, the biggest union at Transnet has written a letter to Godongwana, urging him to reconsider his decision in the medium-term budget policy statement not to grant the entity any funds. The United National Transport Union said the funds would give Transnet “a fair chance to turn things around”.
“The private sector and participation of the private sector in the SOE is not sufficient and cannot save Transnet or any of the other SOEs on their own. The private sector strategic partnerships that the government is pushing are not the magic bullet they have been made out to be,” the union said in a statement.
Partnerships “if successfully implemented will take years to bear fruit as the implementation of such, and the success of this, is riddled with challenges and risks. The situation at Transnet needs immediate intervention to ensure the sustainability of our economy and the job security of employees not only at Transnet” but also mining and agriculture.
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