Transnet to raise capital through global bond

[Steve Appleton]

Transnet to raise capital through global bond
Parastatal determined to raise own project finance on strength of its balance sheet despite liquidity crunch, says CEO.

Artwell Dlamini
Transport Correspondent

TRANSNET has revealed that it plans to launch its new international bonds next year, confirming that it is determined to raise its own funds for its multibillion-rand projects despite the liquidity crunch.

Acting CEO Chris Wells said in the latest annual report that the transport parastatal postponed listing this programme last year due to unfavourable conditions in the debt capital market.

The global bond plan seeks to raise R5bn from US and European investors when market conditions are favourable.

The global financial crisis has drained liquidity and reduced investor appetite, prompting interest rate spreads to widen, raising the costs of borrowing.

Some state-owned enterprises such as Denel, Airports Company SA and Eskom are experiencing funding shortfalls as a result, heightening the need for explicit state guarantees.

But Wells said Transnet intended to maintain its “self-funding model” and to ensure that all borrowings were made on the strength of its balance sheet, suggesting that it did not require a state guarantee.

Anoj Singh, acting chief financial officer, said the company secured R11bn through the local bond market, which raises R1bn monthly though the domestic medium-term note programme.

Sourcing capital, he said, had become difficult and more expensive.

To finance the R80bn capital investment, Transnet requires about R32,9bn from the debt capital market.

The group is also utilising loans from commercial banks, export credit agencies and development finance institutions as ways of diversifying funding sources.

“Transnet will focus on diversifying funding sources both in the domestic and international markets to ensure that it is able to raise the necessary funding cost-effectively,” said Singh.

He said the group had a gearing of 36,2%, leaving room to fund its capital investment programme from the debt capital markets.

The parastatal invested about R19,4bn during the financial year to March.

“Transnet remains keen to explore other innovative funding solutions, including project finance and public and private partnerships,” Wells said.

He expected the new financial year to be “a challenging one”, and said the effect of the recession had yet to be fully felt by the industry and commodities sectors.

Of particular concern was the recent performance of mining and manufacturing sectors, which account for the bulk of Transnet ’s business.

The acting head said Transnet would delay phasing in certain investments due to lower volume growth projections. The focus, he said, was on “priority projects” where capacity needs to be created.

Transnet maintained its commitment to implement a growth strategy, which seeks to upgrade rail networks and port infrastructure.

The sharp decline in demand for commodities and ship-borne freight was demonstrated by the major fall in the Baltic dry index, which fell more than 90% from its peak last year. At Transnet , container and automotive volumes handled by its port terminals declined 12% and 24% respectively during the second half of the year. General freight volumes fell 19%.