Transnet needs an urgent cash injection to make its balance sheet more sustainable and enable it to raise debt to fund its turnaround plan.
This is feedback from one of South Africa’s largest fixed-income investors, Futuregrowth Asset Management.
Investment analyst at Futuregrowth, Lindani Vezi, told 702 that Transnet is crucial to the South African economy, a small but open economy reliant on imports and exports.
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 debt from the country’s ailing state-owned enterprises (SOEs).
However, Vezi said a debt guarantee from the government or cash injection would be the best solution for Transient in the short term, resulting in the government effectively taking over a portion of its debt.
“Transnet’s balance sheet is in a state of ruin where it is not financially sustainable on a standalone basis. So, you need the government to give it credibility in financial markets,” Vezi explained.
Without a debt guarantee or cash injection, pension funds and other institutional asset managers cannot invest in Transnet.
However, “an actual cash injection would be much better because it will get Transnet to a more sustainable balance sheet,” Vezi said.
This would reduce Transnet’s debt servicing costs and enable it to tap institutional investors for cash to invest in its turnaround plan, which is bearing fruit.
Transport economist and professor at Stellenbosch University Jan Havenga said that positive signs are emanating from Transnet and its new management team.
While 2023 was the worst year in South African history for logistics, it was simultaneously the best year for the industry as Transnet’s poor performance kickstarted reform processes.
This includes gradually implementing a logistics roadmap allowing private-sector involvement in running the country’s railways.
One of the major changes has been the change of leadership at Transnet, with CEO Portia Derby and CFO Nonkululeko Dlamini resigning in September 2023, followed shortly by Transnet Rail CEO Siza Mzimela.
The board appointed Michelle Phillips, chief executive of Transnet Pipelines, as acting group CEO, effective 1 November 2023.
Havenga said this new leadership has proven effective in turning the utility’s fortunes around by being more actively involved in the business and more visible.
He said rail volumes are improving, and container volumes, particularly at Durban, are picking up.
Vezi said a debt guarantee or cash injection would enable investors to support this new management team and its implementation of a turnaround plan, the success of which is vital for South Africa’s economy.