South Africa’s state-owned rail and ports operator, Transnet, received a 47 billion rand ($2.5 billion) support package from the National Treasury, sending its bonds soaring to record levels. The bailout comes as Transnet struggles with operational and financial challenges that have hampered its ability to transport the country’s mineral exports.
According to the Treasury, Transnet can access 22.8 billion rand immediately, while the remaining 24.2 billion rand will be available over the next three years. The funds will be used to repay debt, invest in infrastructure, and improve service delivery. The Treasury said the support was conditional on Transnet implementing a turnaround plan that includes cost-cutting, revenue enhancement, and governance reforms.
Transnet’s worsening performance has been a drag on South Africa’s economy, which relies heavily on mining and agriculture exports. The company has faced frequent disruptions, delays, and security breaches on its rail network, as well as congestion and inefficiencies at its ports. Transnet has also been implicated in several corruption scandals involving former executives and contractors.
The support package was welcomed by investors, who pushed Transnet’s bonds to their highest levels ever. The yield on Transnet’s 2030 dollar bond fell by 55 basis points to 5.95%, while the yield on its 2024 rand bond dropped by 40 basis points to 8.6%. The bond prices reflect the improved creditworthiness and liquidity of Transnet, which has a debt burden of about 112 billion rand.
The bailout was also praised by analysts, who said it would help Transnet to restore its operational and financial stability, and boost its contribution to the economy. “This is a positive development for Transnet and for the country as a whole,” said Peter Attard Montalto, head of capital markets research at Intellidex. “It will enable Transnet to invest in critical infrastructure, improve its efficiency and reliability, and support the growth of the mining and agricultural sectors.”
However, some experts warned that the support package was not a silver bullet and that Transnet still faced significant challenges and risks. They said Transnet needed to implement its turnaround plan effectively and to address its governance and management issues. They also said Transnet had to contend with the impact of the Covid-19 pandemic, which has reduced global demand and disrupted supply chains.
“Transnet still has a long way to go to become a world-class logistics provider,” said Azar Jammine, chief economist at Econometrix. “It has to overcome its legacy of corruption, mismanagement, and underinvestment, and to adapt to the changing market conditions and customer needs. It also has to deal with the uncertainty and volatility caused by the pandemic and its variants.”
Despite the challenges, Transnet said it was confident that it could turn around its fortunes, and that it was committed to working with the Treasury and other stakeholders to achieve its goals. Transnet said it was grateful for the support package, and that it would use it responsibly and transparently. Transnet also said it was optimistic about the future, and that it hoped to play a key role in South Africa’s economic recovery and development.
“We are determined to transform Transnet into a world-class, customer-centric, and sustainable organization,” said Transnet’s acting chief executive officer, Mohammed Mahomedy. “We believe that Transnet has the potential to be a catalyst for growth and job creation in South Africa, and to contribute to the regional integration and trade in Africa. We are excited about the opportunities ahead, and we look forward to delivering value to our customers, shareholders, and the society at large.”
Source: Bloomberg
