Transnet in line for more state aid

The government is considering granting further guarantees to Transnet in addition to the R51bn facility announced last month.

The freight and rail group has already gobbled up the R47bn guarantee it received from the National Treasury in December 2023.

The department of transport said in a statement on Thursday that the government has initiated a process to allocate additional guarantees in view of the state-owned enterprise’s R99.6bn debt redemptions that become payable over the next five years.

The statement said the process under way was intended to allocate “additional guarantees to Transnet, to at least cover the entire redemptions” over this period of the corporate plan.

The parastatal has a debt burden of more than R138bn that consumes much of the cash it generates. It has a R9.9bn local bond due for repayment in August.

An announcement will be made by July 25 on the outcome of the process, the statement said.

The development follows a Moody’s report that put Transnet on watch for a ratings downgrade. This was in line with the view of S&P Global, which in December also put the state-owned group on credit watch.

Liquidity risk

The department said the support from the government would allow Transnet to ensure that all debt redemptions would be covered over the next five years, execute its capital investment programme and mitigate its short-term liquidity risk.

“The government is determined to work with Transnet over the corporate plan period to focus on structural solutions to improve its capital structure to reduce its debt levels. The government will monitor the performance of Transnet to ensure it provides adequate support to it as it implements the reforms required by the government,” it said.

The Treasury has refused to provide balance sheet support to Transnet, in line with its “tough love” approach. It has in the past been reluctant to provide further guarantees, encouraging Transnet instead to apply for finance for specific infrastructure projects.

Moody’s expressed concern over Transnet’s “unsustainable capital structure and its deteriorating liquidity” and cast doubt on its ability to meet its obligations without intervention as it acknowledged that the parastatal still had R7bn in undrawn loans and remaining cash reserves from the end of March.

“We expect this amount of available liquidity sources will only be sufficient to reliably cover the company’s operating and investing needs, as well as upcoming debt maturities, for the next three months,” the agency said.

“We believe the company requires additional government support to refinance upcoming debt maturities and secure funds for its expanded capex [capital expenditure] programme.”

Remains confident

Transnet responded to Moody’s dire warnings of its financial position, saying it “remains confident that it will — in line with its funding plan — be in a position to approach the market to raise the required funding to meet its operational requirements and debt obligations for the rest of the year”.

Futuregrowth, one of Transnet’s bondholders, called on the state, as the sole shareholder of Transnet, to sort out the capital structure instead of giving it further government guarantees that ensnare it in further debt.

S&P expects Transnet’s debt pile to breach the R150bn mark by year-end. The agency warned of an increased likelihood of a downgrade if the expected turnaround “in business performance and cash flow generation does not materialise soon enough to control the current leverage levels and capital structure”.

Futuregrowth favoured an equity injection to return Transnet’s capital structure to more sustainable gearing levels.

It was concerned that additional government guarantees did not solve the underlying problem of a dangerously debt-laden capital structure.

It said the cost of this funding and further degradation of the Transnet capital structure made them suboptimal mechanisms.

Update: June 12 2025

This story has been updated with more information.

ensorl@businesslive.co.za