Crucial state-owned company in serious trouble

Transnet cannot service its debt without government support, and weaknesses in the state-owned company’s operations will take time to improve.

These are some of the reasons ratings agency S&P recently downgraded the ports and rail operator, with little hope for an upgrade over the next year.

On 10 July 2025, S&P downgraded its long-term issuer credit ratings on Transnet to B+ from BB-, citing the utility’s high leverage and negative free operating cash flow.

“The ratings downgrade reflects our view that Transnet’s capital structure is unsustainable without extraordinary government support, given persisting substantial cash burn in the next few years, elevated leverage, less than adequate liquidity, and ongoing covenant breaches,” S&P said.

This comes as Transnet is in the process of implementing a turnaround plan aimed at improving the utility’s operational and financial performance.

Trasnet’s collapse has been ongoing for years, as the utility has struggled to improve its operational and financial problems.

As a result, many South African companies have reduced their reliance on the utility by transporting goods via road rather than rail and using ports outside the country for export.

This forms the basis of Transnet’s vicious cycle – the operator’s financial struggles mean it cannot afford to invest in improving its rail network, which pushes customers away, decreasing Transnet’s revenue, and further worsening its financial position.

While Transnet is implementing a turnaround strategy to address this and get its business back on track, S&P does not expect to see a significant recovery anytime soon, either operationally or financially.

Transnet has made some inroads in improving its rail volumes, but continues to miss its own targets.

S&P explained that Transnet is fighting an uphill battle given the extent of network rehabilitation required at the utility due to maintenance backlogs, aged infrastructure, and ongoing security incidents.

Therefore, the ratings agency expects Transnet Freight Rail volume recovery to fall short of budgeted projections under its base case. 

Positively, the agency said the gradual recovery in Transnet’s rail volumes, while falling short of the target, will support the utility’s revenue growth.

S&P expects Transnet’s revenue to reach approximately R82 billion in the 2025 fiscal year and about R87 billion in 2026. 

However, given Transnet’s high fixed-cost base, high debt burden and the consequentially high debt-service costs, S&P forecasts that the utility will only generate adjusted annual funds from operations of R8 billion to R14 billion over fiscal years 2025 and 2026.

Therefore, the utility’s financial performance will continue to struggle despite operational improvements.

Transnet drowning in debt

One of S&P’s biggest concerns regarding Transnet is its financial deterioration, which makes it heavily reliant on state support.

In its latest results for the 2024 financial year, Transnet reported a R7.33 billion loss and significant liabilities.

In May 2025, Moody’s Ratings warned that Transnet would run out of money for operations and debt servicing within three months unless it gets a government bailout.

To address this, Transport Minister Barabary Creecy, with the concurrence of the Finance Minister, agreed to provide Transnet with a R51 billion guarantee facility in May 2025.

At the time, the government explained that this guarantee facility was effective immediately in support of Transnet’s capital investment programme and would enable it to meet its debt obligations.

S&P welcomed and acknowledged this government guarantee package and other measures of state support that have helped stabilise Transnet’s liquidity.

However, the agency said Transnet’s overall liquidity levels remain “less than adequate”, and warned that the utility will require more state support.

“Extraordinary government support is critical to avoid an otherwise acute and immediate deterioration of the financial profile and liquidity position,” the agency said.

“Although the government guarantees might alleviate the short- and medium-term liquidity issues, they do not change our view on cash flow generation and leverage.” 

As of 31 March 2025, S&P estimates Transnet’s available liquidity at about R40 billion. This compares with liquidity needs of about R41.3 billion, which comprises mainly debt maturities of around R18.9 billion and maintenance capex of R21.1 billion.

“We regard Transnet as a government-related entity with a very high likelihood of receiving extraordinary support from the state, if needed,” the agency said.

“Notwithstanding the challenges facing Transnet, we think the company plays an instrumental role in South Africa’s transport industry and, by extension, its economic growth thanks to its control of all major logistics infrastructure.”