Moody's warns of threat to Transnet ratings as government steps in with guarantees
This comes after the government announced on Thursday last week that it had entered a process to allocate additional guarantees to Transnet to allow the company to cover at least all debt redemptions over the next five years and enable it to fund its capital expenditure program.
Image: File
Moody's Ratings has warned that Transnet's ratings will remain under review for downgrade until the South African government completes the process to allocate additional guarantees by the end of July.
This comes after the government announced on Thursday last week that it had entered a process to allocate additional guarantees to allow the State-owned freight and logistics company to cover at least all debt redemptions over the next five years and enable it to fund its capital expenditure program.
The Minister of Transport, with the concurrence of the Minister of Finance, approved a R51 billion guarantee facility for Transnet's capital investment programme and debt obligations.
The facility will enable Transnet to refinance maturing debt and ensure the organisation's continued access to adequate resources and facilities to be able to continue its operations as well as fund the capital investment programme for the foreseeable future, while also enabling Transnet to focus on operational improvements and strategic reforms.
The formalized R51bn guarantee facility has been structured to cover R41bn in funding needs that Transnet expects through the end of financial year 2027, along with R10bn in guarantees for liquidity facilities.
Moody's on Thursday said it viewed the significant support measures as strengthening the financial stability of Transnet.
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Moody's senior credit analyst Lisa Jaeger said they viewed the announcements as materially credit positive for Transnet and will monitor the outcome of the process as part of the ratings review on Transnet.
'Until the conclusion of our review, Transnet's ratings, including its long-term corporate family rating (CFR) of Ba3, and its Baseline Credit Assessment (BCA) of b3 remain under review for downgrade,' Jaeger said.
'Based on the government's most recent statement, we understand that it is working on providing at least an additional R48.6bn in guarantees, available until March 2030. This would bring the total guarantees announced in 2025 to R99.6bn, the amount needed to cover Transnet's debt maturities over the next five years.'
The new guarantee facilities would be following a previous R47bn guarantee facility provided in December 2023, which has been exhausted.
The R51bn guarantee facility that has already been formalized is easing Transnet's immediate liquidity pressure and will enable it to meet a R9.9bn local bond maturity in August 2025,.
Jaeger said this was a payment they did not expect Transnet would be able to reliably meet without additional government support.
'While this facility does not provide a permanent solution to Transnet's ongoing liquidity challenges, we believe the announced additional guarantees would support a sustainable improvement in the company's liquidity position,' Jaeger said.
'If the government provides an additional R48.6bn in guarantees as implied by the latest announcement, the total guarantees to Transnet would increase to R150.1bn, which exceeds Transnet's total debt balance of R136bn as of September 2024.
'We expect Transnet's total debt will continue to slightly increase over the next two years, nevertheless, the company would then be able to refinance nearly its entire debt with government guarantees. We believe this will substantially reduce the company's refinancing risk and ensure it maintains an adequate liquidity profile while Transnet continues to progress with its operational turnaround plan.'
Transnet falls under Moody's Government-Related Issuers (GRI) methodology given its 100% government ownership.
Moody's GRI assumptions are comprised of 'Very High' default dependence with the government of South Africa and 'High' probability of extraordinary support from the government, resulting in three notches of uplift of the company's Ba3 CFR from its b3 BCA.
Jaeger said Moody's rating review will focus on the sufficiency of government support measures to bring the company's capital structure and liquidity position on a sustainable footing.
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