South Africa's state-owned freight company Transnet is asking lenders to relax financial tests on loans as it prepares to borrow more than $200 million in a planned refinancing this year, it told Semaphore.
The move would offer the government to replace some commercial safeguards – “debt covenants” in corporate finance parlance – increasing fiscal risks and raising new questions about whether a lack of company liquidity could force state support.
Transnet, which exports the bulk of Africa's most industrialized economy and runs major ports and pipelines, is struggling with a debt pile of about $2.6 billion. This is another wildcard national budget Finance Minister Enoch Godongwana announced this late last month already stressed After the US and Israel launched attacks against Iran, which caused markets to tighten and fuel prices to rise.
The company, which is the backbone of mining exports in the resource-rich country thanks to its vast rail, port and pipeline network, said it is revising the rules on loans, and how these loans are priced, confirming Semaphore's reporting based on a source with knowledge of the matter.
It argued that lenders should focus on the government's sovereign guarantee rather than the company's finances, which are strained due to aging rail infrastructure, shortages and thefts of rolling stock.
As part of efforts to keep interest payments in check, which swallow up about half of its core earnings or EBITDA, Transnet told Semaphore it was preparing to borrow more than $230 million this year.
Songzo Zibi, chair of the South African parliament's public finance committee, told Semaphore that Transnet must transport more freight to stabilize its finances, but operational problems are preventing it. A Dispute with a Chinese locomotive supplier Many trains have been left idle, and Zibi said the company “could be stuck in one place for a long time.”
“Transnet has a liquidity problem,” he said. “It will require some form of capital investment to meet its obligations.”
His comments shed light on Godongwana. Since 2023, government guarantees for Transnet have more than quadrupled with expectations that the company will turn its fortunes around.
Transnet has been a problem for South Africa's economy for more than a decade, which was hollowed out by a frenzy of corruption during President Jacob Zuma's administration. It relies on a government guarantee of about $3.4 billion after borrowing $2.6 billion to buy hundreds of locomotives, which have since lain idle. Standoff continues with Chinese supplier CRRC-e-loco. A series of locomotive contracts awarded by Transnet to CRRC were later ruled illegal and overpriced.