Popo Molefe. Picture: GALLO IMAGES
Popo Molefe. Picture: GALLO IMAGES

Lenders have agreed to hold off their claims on a portion of Transnet’s R127.7bn debt after auditors found technical problems when they signed off its financial results, acting CFO Mark Gregg-MacDonald says.

Transnet has been in talks with lenders to waive their rights under a clause in loan agreements that states that a qualified audit opinion, which generally means the auditor has found minor problems with its books but is still broadly vouching for them, would trigger a technical default and call for immediate repayment of the debt.

Obtaining the waivers is important for Transnet to avoid the trigger, which would precipitate a financial crisis because lenders would demand an immediate repayment of R14bn, or about 11% of the company's total borrowings.

Gregg-MacDonald said on the sidelines of a meeting of parliament’s public enterprises committee on Wednesday that Transnet was confident about getting all the required waivers.

In the 2018/19 results, Transnet’s auditors signed off  the books but gave the group a thumbs down for a technical contravention of the Public Finance Management Act with regard to procurement. Transnet is disputing that finding.

Moody’s Investors Service warned a few weeks ago that there would be downward pressure on its rating of the parastatal if it did not get these waivers. It said the qualified audit opinion on the financial statements for the fiscal year ended March 31 made the company’s credit profile vulnerable given the need to maintain strong access to the debt market.

A similar situation occurred in 2018 but Transnet managed to obtain the waivers from the same set of lenders.

Moody’s recognised that Transnet had improved its governance and internal controls, and expected the waivers to be granted.

The head of the board's finance committee, Louis von Zeuner, told the committee that Transnet would apply to the government for a special dispensation to deal with historic issues arising out of the state capture commission. Otherwise the transport utility would get a qualified audit opinion arising from irregular expenditure.

Transnet chair Popo Molefe added that extraordinary measures were needed to deal with the extraordinary circumstances as soon as possible. He emphasised that Transnet continued to be robust as shown by the financial results for 2018. He noted that the irregular expenditure of R49.9bn was the outcome of investigations into the acquisition of 1,064 locomotives and other transactions which were plagued by state capture.

Molefe said these investigations had led to the termination of employment, suspensions and resignations of people at strategic level. Efforts are under way to find a group CEO, a CFO, a group treasurer, chief audit officer, chief information officer, chief procurement officer, forensic manager and CEO of Freight Rail.

Meanwhile, Transnet acting CEO Mohammed Mahomedy said Transnet had secured funding until December 2020 at unspecified competitive rates. He believed that the response by the market to its fundraising initiatives demonstrated a “restoration of confidence in Transnet”.

In the 2018/2019 financial year, Transnet, which employs about 55,000 people, generated earnings before interest, tax, depreciation and amortisation (ebitda) of R33.8bn — an increase of 3.8% over the previous year — on revenue of R74bn. Profit for the year increased 24.7% to R6bn.

Earlier in October, Moody's affirmed Transnet’s Baa3 rating but changed its outlook to negative from stable because it believes Transnet’s liquidity has weakened and its reliance on refinancing activities has increased because of debt maturities in the next several years.

About R52.5bn of debt net of hedging (47% of total) is maturing between August 2019 and March 2023.


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