Taxpayer saves Transnet with R51 billion bailout

South Africa’s transport ministry, with the concurrence of the Finance Minister, agreed to provide a R51 billion guarantee facility to Transnet, the nation’s beleaguered rail and ports operator.

The company will be able to access the funds immediately to support its “capital investment program and to enable it to meet its debt obligations,” the transport ministry said in a statement Thursday. 

Finance Minister Enoch Godongwana warned in his Budget Speech that there are some spending pressures that may result in the government spending more than expected in the current financial year.

These include the withdrawal of the President’s Emergency Plan for AIDS Relief (PEPFAR) funding, particularly through USAID and infrastructure investments from PRASA.

Spending pressure is also expected to come from strengthening the capacity of the Office of the Chief Justice and Stats SA.

A more recent pressure comes from Transnet, which is sitting with over R130 billion in debt and is busy implementing a turnaround plan.

On 16 May, ratings agency Moody’s warned that Transnet will run out of money for operations and debt servicing in three months unless it gets a government bailout.

The ratings firm has placed Transnet on review for a possible credit downgrade, citing concerns over its “unsustainable” capital structure, deteriorating liquidity position, slow pace of operational improvements and absence of support from the government.

“The company requires additional government support to refinance upcoming debt maturities and secure funds for its expanded capex program,” Moody’s said in a statement.

Transnet’s available cash and credit lines “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,” it said.

In response to this, Godongwana said in his speech that the government will consider state guarantee support to Transnet.

This will enable the state-owned entity to refinance maturing debt and enable the execution of its capital investment programme, Godongwana said.