South Africa

Investors will punish South Africa for R47 billion Transnet bailout

Efficient Group chief economist Dawie Roodt said the debt guarantee National Treasury provided Transnet will affect the country’s fiscal accounts, and the financial markets will see right through it.

On Friday, 1 December, the National Treasury agreed to provide Transnet with a R47 billion guarantee facility.

The utility will be able to access R22.8 billion immediately and has to meet “strict guarantee conditions” for the rest of the funds. 

Roodt told eNCA that the government did not give Transnet a capital injection. Instead, the Treasury issued the utility a debt guarantee for its significant R130 billion debt pile.

He said a few months ago, Transnet’s debt of around R7 billion to the Public Investment Corporation (PIC) was due, and the utility did not pay it.

The PIC allowed Transnet to roll this debt over for a few weeks, and the utility has yet to pay it.

Roodt believes Transnet will use part of the R47 billion debt guarantee from the Treasury to pay off this and other debt obligations.

“So there’s no real cash that is flowing yet, but what we are doing in South Africa is we keep on guaranteeing the state-owned enterprises,” he said. 

“We keep issuing more guarantees to the state-owned enterprises like what is happening now.”

However, he said that debt is not included in the country’s debt because it is not debt yet, and it is also not included in the government’s fiscal deficit because it is not money spent yet. 

“Now I’m afraid the financial market is going to see through this,” he warned.

“You can’t just keep on issuing more and more guarantees and think that you’re not affecting your fiscal accounts – you are, and the financial markets will punish you, and I think that day is getting closer and closer.”

Krutham managing director Peter Attard Montalto has previously said that the National Treasury has little choice but to come through in some form and provide support for Transnet. 

“If you did not do these bailouts, they would come back to bite you ten times worse later regarding defaults and investors pulling out of the country.”

“There is a massive moral hazard problem here – Treasury has an implicit 100% guarantee against all state-owned enterprises, and the markets sense this. It is only really about the conditions the Treasury can apply through the bailouts,” Montalto said. 

He said the National Treasury would most likely impose strict conditions on Transnet for the bailout, similar to Eskom’s, whose debt relief is tied to implementing structural reforms. 

However, Montalto warned that the problems at Transnet are even more complex than those at Eskom due to the organisation’s nature. 

“Transnet is even odder than Eskom in many ways as it has quasi-regulatory functions. For example, it implemented third-party rail access when it should not have, as an independent regulator should do that,” Montalto said.

It also has deep conflicts between parts of its business, with its rail operator and infrastructure manager regularly butting heads. 

National Treasury will have to try to solve this through the conditions attached to Transnet’s debt relief. 

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