Stanlib, one of the biggest investors in government bonds, with more than R80bn parked in public debt, has warned that any delay in giving financial support to Transnet risks rolling back economic reform gains.
The specialist investment manager urged a pragmatic approach in dealing with the entity’s precarious finances.
In December 2023, the National Treasury awarded Transnet a R47bn government guarantee to provide market confidence that private sector capital would flow to the entity as it was key to SA’s trade with the rest of the world.
However, Transnet has so far failed to convince the government to provide it with an equity injection and take a portion of its debt — like it did with Eskom.
Head of fixed income at Stanlib Victor Mphaphuli said the weak state of Transnet’s finances could not be wished away.
“The reality is that Transnet without some form of government support will make it difficult for the entity to sustain itself. At some point, the support will have to come through. Hopefully it is not something that the government will leave it too late and pump money into a bigger hole,” Mphaphuli said.
“We hope the government is pragmatic and identifies any risks Transnet presents early. If they don’t, all the improvements we have seen from Eskom and pick up in business confidence will be undermined if we try to get products to the export market,” Mphaphuli said.
“Transnet is a very important entity to the economy, and key to the delivery of the government’s reform objectives. If we don’t sort out Transnet that means that the bottlenecks which prevent goods from leaving and entering the country will remain.”
With about 28%, or roughly R85bn, of its R302bn fixed-income assets in government bonds, Stanlib has a significant stake in the health and stability of the government.
Business Day previously reported that R70bn would need to be invested in the rail network infrastructure over the next five years to get it up to standard. The group is in talks with customers and with the government on how to fund this.
The ANC’s economic transformation committee has called on the government to give Transnet fiscal support in the February budget.
However, finance minister Enoch Godongwana has rebuffed his party’s call, sticking to the “tough love” approach to SOEs, which has drained public resources over the past decade.
Stephen Naidoo, portfolio manager at SA’s largest asset manager Ninety One, said Transnet received an unqualified audit opinion on its most recent annual results, though auditors raised concerns about its ability to continue as a going concern.
“Looking ahead, we anticipate that it will take time for the actions envisaged by the turnaround plan to have a meaningful impact on the operational performance of the company. While it does appear that the company will have sufficient debt facilities to meet its capex and debt maturities for the 2025 financial year, that is ending on March 31 2025, the outlook for 2026 and beyond is not as certain and it is likely some form of support from government will be required,” Naidoo said.
Support on a project basis appears to be a clear priority. We believe that a potential extension of the guarantee facility will be favoured over an equity injection.
— Stephen Naidoo, portfolio manager at SA’s largest asset manager Ninety One
“While government has made it clear that an equity style injection is not its preference, it has not indicated that it is unwilling to support the entity. The government has shown demonstrable support to date in the form of the guarantee, which is accessible until March 2025,” he said. “Support on a project basis appears to be a clear priority. We believe that a potential extension of the guarantee facility will be favoured over an equity injection.”
Godongwana will table the budget next week in the knowledge that a credit downgrade of Transnet is on the cards after S&P in December put the entity on a credit watch.
S&P said it expected the government to grant it further financial support to transform its capital structure, fund capital expenditure and meet upcoming debt maturities. This is as S&P expects Transnet’s debt pile to hit the R150bn mark by the end of this year.
Old Mutual chief economist, Johann Els, said he did not expect surprises from the budget speech.
“Economic growth is picking up. That will help tax receipts. The environment is somehow better on the revenue side. However, there are clear pressures on the expenditure side,” Els said. “There is also potentially some support for SOEs. There is talk for more money for Eskom and support for Transnet. A lot of municipalities are also in financial dire straits,” he said.
“However, I expect the Treasury to remain conservative in giving out money. Transnet is too big to fail and too weak to go on its own. Transnet’s situation has improved but they need more money, especially on the debt side.
“Maybe the Treasury can give Transnet support with interest payments on their debt [which amounts to more than R1bn a month]. I doubt there will be money spent on Transnet and Eskom.”
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