Another Transnet bailout inevitable

Another Trasnent bailout, on top of the R47 billion pledged by the National Treasury in December last year, is inevitable as the government will not allow the utility to fail. 

This is feedback from Bank of America senior economist Tatonga Rusike, who said that government support for Eskom, Transnet, and a permanent social relief of distress grant are major fiscal risks. 

The government’s debt burden is steadily growing, with the Treasury forecasting at the end of last year that gross debt as a percentage of GDP would peak at 77.7% in 2025/26 – up from a forecast of 73.6% in February 2023.

Much of this growth is expected to come from the government taking on more and more debt from the country’s ailing state-owned enterprises (SOEs). 

Last year, the National Treasury announced a plan to take on R254 billion of Eskom’s debt and R47 billion of Transnet’s. 

Rusike said this is not the last bailout Transnet will receive as the utility will continue to struggle to service its debt. 

“Government does not want Transnet to default and that, like Eskom, it is too big to fail,” he said. 

As long as no structural reform occurs at Transnet to improve its operating performance significantly, the utility will be unable to generate enough cash to service its debt without the government’s help. 

“Direct budget financing looks inevitable, either below or above the line. We think that overall exposures to Transnet will not exceed 1% of GDP despite its total debt being about R130 billion or close to 2% of GDP,” he said.

Rusike’s comments echo one of the country’s largest debt investors, Stanlib, who warned after the Medium-Term Budget Speech (MTBPS) that taxpayers would bail out SOEs again.

In a note to clients, Stanlib said it is encouraging that the National Treasury did not propose additional allocations to SOEs in the MTBPS. 

This shows that the Treasury is taking a hardline approach towards SOEs, pressuring them to restructure and implement reforms before allocating funds. 

However, most of South Africa’s SOEs are “in serious financial difficulty and will need government assistance sooner or later”, Stanlib said. 

“By not making provisions for SOEs now, the minister is simply delaying the inevitable and pushing the problem down the road.”

Transnet is the most concerning for Stanlib, as the utility has already requested additional funds from the government as part of its turnaround plan. 

The utility submitted a plan to the Presidency setting out ways to reverse the country’s logistics crisis, including an ‘Eskom-esque’ partial debt transfer to help ease the burden of its estimated R130 billion debt. 

Transnet said a healthier balance sheet is required to finance its rail infrastructure maintenance.