Transnet acting CEO Mohammed Mahomedy. Picture: SUPPLIED
Transnet acting CEO Mohammed Mahomedy. Picture: SUPPLIED

Transnet, SA’s state-owned rail and ports utility, says it has addressed the concerns underlying the change in outlook to negative by ratings agency Moody’s Investors Service. 

Transnet’s outlook was lowered to negative from stable by Moody’s but it kept the utility’s investment grade intact. Acting CFO Mark Gregg-Macdonald said on Monday that the agency’s main concerns have been largely addressed and that another review is due in three months’ time.

Transnet, which delivered a solid set of interim results, is negotiating R13.5bn worth of loans with two local and three international banks, settling on interest repayment below the current average weighted financing costs of 10.5%, he said.

Transnet's acting chief financial officer Mark Gregg-Macdonald spoke to Business Day TV about the state-owned company's interim results.

Investors had unexpectedly requested Transnet bonds, and the utility had raised R900m in the space of a month, while interest in the bonds indicates R3bn could have been raised, Gregg-Macdonald said. This inflow of money, along with reduced capital spending during the first half of the 2020 financial year, mean Moody’s concerns about expenditure and the balance sheet should largely be allayed, he said.

One of the reasons for lower capital spending during the interim period was the slow delivery of new locomotives, mainly by two suppliers, which were struggling to set up their production lines in Durban.

The R1.3bn relocation of locomotive manufacturing to Durban, which was prompted by a questionable decision by the previous Transnet management, has resulted in about one-fifth of locomotives being delivered from Canada’s Bombardier and China North Rail over the past five years, a situation Transnet finds untenable.

The two companies have cited difficulties setting up their production lines, but Transnet executives have noted that delays of more than five years and the delivery of just 75 out of 472 locomotives from the two companies is unacceptable.

Transnet, which spends between R11bn and R12bn on financing its debt each year, will reduce this by about R1bn for its 2020 financial year as it continues to restructure its debt portfolio and make repayments, Gregg-Mcdonald said.

A potential default on R14bn of debt triggered by an audit qualification in the 2019 full-year results has also been resolved, with all the banks issuing a waiver on calling in their loans. Final letters stating this is the case will be signed on Monday, he said.

Transnet has signed a settlement agreement with Regiments Capital to have R180m, or 60%, of the advisory and finance-arrangement fees repaid in the procurement of 1,064 locomotives. Regiments was linked to the Gupta family, which is at the heart of allegations of capturing key state institutions and benefiting from the flows of billions of rand out of these organisations. 

The locomotive plan is riddled with irregularities and unlawful agreements, and Transnet is in talks with four locomotive-building companies around these contracts, said acting group CEO Mohammed Mahomedy. Transnet has, from its side, concluded what it set out to achieve in the talks, he said, and will now approach the court, hopefully with “just and equitable” agreements reached between the utility and the four companies, he said.

The first six months for Transnet up to end-September reflected the “tough trading” conditions for the broader SA economy as seen in reduced general freight movement and certain commodities, said Mahomedy.

Interim revenue was up 2.9% to R38.7bn year on year, while net operating expenses were kept in check, rising 1.2% to R21.2bn. Net profit increased 3.5% to R2.95bn, while financing costs fell to R5.57bn from R5.65bn.

General freight volumes fell by 1-million tons to 42.4-million tons during the period, while container numbers dropped by a similar number to 2.3-million twenty-foot equivalent units, a measurement of container capacity.