Transnet confident it can borrow R100bn

[Steve Appleton]

From Business Day, 21 February 2012, http://www.businessday.co.za/articles/C ... ?id=165374

Transnet confident it can borrow R100bn.

More than half of R300bn capex programme to go to new assets.

NICKY SMITH and RON DERBY
Published: 2012/02/21 06:49:54 AM

TRANSNET is confident that its balance sheet is strong enough to support its plans to borrow R100bn to fund its ambitious capital expenditure drive.

The state-owned company, which operates a rail and port monopoly, will invest R300bn in infrastructure over the next seven years. Its spending plan has been tripled to meet the government’s resolve to stimulate the economy and create jobs.

This expansionary shift in capital allocation will enable Transnet to invest more money on new capacity than it has been able to in the past. Its previous, R110bn, five-year capital expenditure programme would have invested about 70% in existing infrastructure and allowed for the replacement, refurbishing and repair of rail lines, rolling stock and handling equipment. Only 30% was earmarked for new equipment and infrastructure, Transnet CEO Brian Molefe said yesterday. The new investment programme would allow Transnet to spend 55% of its capex on new infrastructure, Mr Molefe said.

"Our borrowing requirements will be R100bn — most of that will come from the bond market. We will enter domestic and international bond markets and co-ordinate with other state-owned entities and National Treasury; we will also borrow opportunistically and get loans from the loan market, and export insurance guarantees depending on what we purchase," Mr Molefe said. "Our gearing ratio is 41% with the new programme. It will not go beyond 47% and the covenant on our bond programme is 50%, so we will still have a buffer."

Mr Molefe was "confident" the balance of R200bn would be funded "comfortably" from cash generated by Transnet’s operations. The increased spending will mean Transnet will need to raise its tariffs. Last week the Ports Regulator of SA turned down its request for an 18.06% increase in port tariffs, and approved 2.7%. Last year Transnet was given a 4.42% increase when it said it needed 10.62%. Mr Molefe said he was not concerned about the tariff increases. "We are quite comfortable with the increase we got this year. It doesn’t affect our plans for the R300bn programme," he said.

Lower tariffs would affect Transnet’s profitability in the "short term", Roelof Steenekamp, a director at ratings agency Fitch, said yesterday. However, the tariffs "won’t fundamentally alter its ability to repay its bonds and it won’t be something to affect its credit rating as it has strong support from the state".

Transnet’s increased tariffs in the future will, in some instances, be above inflation — but their effect would not be inflationary as customers would be paying for raised capacity, Mr Molefe said. An expanded Transnet would generate more money as demand for rail services was "almost unlimited", Mr Molefe said. The new assets would start making money almost immediately, lightening the debt burden. He said adding to Transnet’s capital base was a virtuous cycle, since adding assets bulked up its balance sheet, further enhancing its ability to source money on the bond markets.

Mr Molefe said the economic turmoil in Europe had turned the euro into "an exotic currency" — making the timing of entry into its debt markets uncertain.

— Transnet announced in Johannesburg yesterday that it had awarded a five-year, R350m contract to audit firm SizweNtsalubaGobodo in line with the government’s demand that it support its transformation agenda.