Transnet sweet-talks itself out of credit default
SA’s state-owned ports and rail operator says it is putting together a plan to stamp out irregular spending that has damaged its reputation
Rail monopoly Transnet, whose CEO is under fire for his role in a questionable locomotives deal, has had to sweet-talk lenders holding R15.8bn of its debt after a qualified audit on its 2018 results triggered a credit default.
In its agreement with the lenders, a qualified audit gives lenders the right to call in those loans, immediately.
Despite SA’s sovereign downgrade to junk status by ratings agencies S&P Global and Fitch, Transnet, which also controls SA’s ports and fuel pipelines, has managed to keep a stand-alone investment-grade credit rating. But it needs to maintain a good relationship with its lenders if it is to complete a planned R164bn investment programme over the next five years.
Transnet’s former CEO Brian Molefe and former CFO Anoj Singh have been deeply implicated in corrupt deals with the Gupta family, and the state-owned entity said it had uncovered R8.1bn in irregular expenditure going back to 2005 — R800m of that incurred in the past financial year to end-March.
The spending related to the “deterioration of key supply chain controls”, Transnet said.
But CEO Siyabonga Gama, who is fighting for his life at the company after being served with a suspension notice last week, said Transnet’s engagements with its backers had been “positive” and that “to date, none of the lenders have indicated they would be pulling any of their credit lines”, citing Transnet’s positive cash flow.
To the surprise of some, Gama, who took home R8.1m in guaranteed pay and a further R7.5m in short-and long-term incentives in 2018, presented Transnet’s financial results on Monday — the deadline set by the board for him to give reasons why he should not be suspended.
In its results, Transnet admitted there had been “lapses” in “financial discipline” and that overall corporate governance was “inadequate”. It said procurement issues had knocked its ability to attract investment.
“A corrective plan has been defined and it will be presented to the board for their approval and we have got a number of initiatives and processes that will be in place,” acting CFO Mohammed Mahomedy told Bloomberg.
Chief procurement officer Thamsanqa Jiyane and supply chain manager Lindiwe Mdletshe were also served with suspension notices. A 2017 probe by law firm Werksmans found that Gama, Molefe and various Gupta associates could have breached the Public Finance Management Act in relation to the purchase of 1,064 locomotives from General Electric, Bombardier Transport, China South Rail and China North Rail.
In the year to end-March, Transnet’s loans stood at R122.5bn, with gearing — which measures the extent to which the company’s activities are funded by its own funds relative to debt — of 43.4%.
Still, cash flows from operating activities slid 8.5% to R22.9bn and it ended the year with total cash of R4.4bn — a drop of almost 32%.
Revenue for the year grew 11.3% to R72.9bn, notwithstanding that the biggest contributors to its freight rail posted single-digit volume growth. General freight volumes were up 3.1%, railed export coal grew 4.3% and automotiove and container volumes were up 6.5%. Earnings before interest, tax, depreciation and amortisation rose 18% to R32.5bn.