Treasury gives Transnet a R47 billion lifeline
South Africa’s National Treasury agreed to provide a R47 billion support package to Transnet, backing efforts by the nation’s beleaguered rail and ports operator to improve its finances and performance.
The company will be able to access R22.8 billion immediately under a guarantee facility, the Treasury said in a statement on Friday. Transnet will have to meet “strict guarantee conditions” for the rest of the funds, according to the statement.
Inefficiencies at Transnet have prompted companies to cut thousands of jobs to reduce costs due to shipping delays that have led to a pile-up of commodities at warehouses and ports.
Transnet had requested an equity injection from the state, as its 130 billion-rand debt pile means it’s unable to fund itself in capital markets. It also needs money for a turnaround plan to increase exports, which are vital for the economy.
The guarantee “creates opportunities for restructuring the balance sheet” and also brings in a much-needed level of oversight over the longer term, said Jan Havenga, an emeritus professor at Stellenbosch University who specializes in logistics. It can also accelerate some of the company’s plans to boost operations, he said.
Locomotive shortages and crime ranging from vandalism to sabotage have plagued the rail network, with deliveries from coal mines to the main export terminal dropping to the lowest level in three decades.
Ports have become clogged with vessels, partly due to extreme weather that’s damaged equipment. With the breakdown of the national logistics network, finances have become dire.
The company rolled over R7 billion of debt that was due Nov. 6 by issuing short-term paper to the Public Investment Corp., which oversees South African government pension funds.
That debt is due to be repaid in March, giving Transnet less than four months to effect a turnaround and convince the government it deserves help.
Moody’s Investors Service on Nov. 10 put the company’s rating on review for downgrade, citing concern that Transnet’s liquidity profile is weakening.
The current obstacles at Transnet are rooted in issues stretching over the past decade as corruption and mismanagement during the administration of former President Jacob Zuma took their toll, followed by pandemic-induced losses.
A surge in infrastructure theft and restrictive graft-prevention measures by the Treasury deepened the malaise. Portia Derby, appointed three years ago as chief executive officer to fix the business, left as the situation grew worse.
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