The government has approved another R94.8bn in guarantee support for ailing state-owned utility Transnet.
The approval of more state aid comes after the entity was put on credit watch in recent months, elevating concerns about its unsustainable debt burden.
The department of transport announced in June it was considering approving further guarantees, in the hope that additional government support would help Transnet 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,” the department said in June.
It said in a statement on Sunday it had approved R48.6bn in guarantees to ensure Transnet’s debt redemptions were covered and that the logistics provider had sufficient liquidity over the next five years.
A further R46.2bn was approved in lieu of Transnet’s newly downgraded credit rating to “mitigate the risks of such ratings actions on [Transnet’s] debt”, said the department.
The development follows a Moody’s report in May that put Transnet on watch for a ratings downgrade. This was in line with the view of S&P Global Ratings, which in December also put Transnet on credit watch.
The department said it would continue to work with Transnet to “ensure operational and financial improvements in the company” and “accelerate implementation of reforms for the logistics sector, including private sector participation”.
Late last year, Transnet announced its decision to split Transnet Freight Rail (TFR) into an operations division, still called TFR, and a distinct infrastructure manager unit, which would pave the way for third-party participation in Transnet’s 21,232km rail network.
Transnet Rail Infrastructure Manager (Trim) promises to end the TFR monopoly and drive the recovery of SA logistics by attracting more focused, private sector investment into the country’s rail corridors, a critical reform given the outsized role railways play in the domestic economy.
However, cash-strapped Transnet has estimated that it needs R14bn a year over the next five years to get its ailing network infrastructure up to standard for private operators.
Business Day reported in June that the parastatal had a debt burden of more than R138bn that consumed much of the cash it generated. It had a R9.9bn local bond due for repayment in August.
With Linda Ensor
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