So Transnet finally has another guarantee. It’s a mixed blessing for Transnet itself, albeit an urgent and essential one. The National Treasury couldn’t have been too pleased about transport minister Barbara Creecy’s insistence on a guarantee either. But it kicks the can of Transnet’s distressed finances down the road for the moment. And if it can be used as a lever to force Transnet to speed up turning around its operations and to put the pressure on the state-owned company and its parent department, transport, to pick up the pace on private participation, it might turn out better than expected.
The Treasury has refused to provide balance sheet support to Transnet, in line with its “tough love” approach, and the R47bn guarantee it approved in December 2023 came with stringent conditions, not all of which Transnet has yet met. It’s been reluctant to provide further guarantees, encouraging Transnet instead to apply for finance for specific infrastructure projects.
But as Moody’s reported recently when it put Transnet on watch for a ratings downgrade, Transnet has fully exhausted the R47bn guarantee facility, which expired at the end of March, and the liquidity it now has available is enough to cover its operating and investment needs and fund upcoming debt maturities for only the next three months. It has a R9.9bn local bond due for repayment in August 2025.
Moody’s urged equity support for Transnet. The rail company and the Treasury instead approved a R51bn guarantee. All that does is enable Transnet to borrow more to address its cash crunch. But debt is debt. Transnet already has a debt burden of more than R138bn, which consumes much of the cash it generates. Not only does that constrain its ability to upgrade its infrastructure, but it also constrains its ability to prepare that infrastructure, specifically rail, for the entry of new private operators. The message is clear: private partners must be brought in urgently to take over the lines themselves and the ports. The government must also mandate Transnet to sell assets, not only noncore small ones, but core bigger ones. That’s the only real way to restructure Transnet’s ailing balance sheet without burdening taxpayers.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.