Transnet seeks further reprieve from R10bn debt repayment as December deadline looms
Transnet has another portion of debt – worth almost R10bn – that has to be repaid by the end of December. Transnet told Daily Maverick it would deal with the debt in the same way it did the debt that became due in November – by refinancing it.
Transnet, the state-owned transport company that has accumulated a mountain of debt, plans to ask its lenders for a further reprieve on a big chunk of debt that is due next month to avoid a messy default and potential bankruptcy.
Transnet has already received a reprieve on a portion of its debt totalling R7-billion, which was due for repayment on 6 November 2023. The company asked lenders to roll it over to a later period.
In finance lingo, Transnet “refinanced” the debt that became due for repayment in early November, meaning that it applied for new debt and used it to replace existing/outstanding debt while negotiating new repayment terms.
This debt is held through publicly listed notes or debt instruments like the domestic medium-term note (DMTN) programme. A DMTN programme is like a sophisticated company credit card that a company uses by withdrawing money contributed by lenders to fund its operations. To raise money on the open market, Transnet would issue debt or notes to lenders with a promise of paying back the money at a fixed and floating interest rate at a later stage.
The debt worth R7-billion was due in early November. Of that, R4.6-billion, mainly due to the Public Investment Corporation (PIC), was refinanced. Transnet settled the balance of the amount due to other lenders through its existing cash resources.
Although refinancing a big portion of the debt has bought Transnet more time to pay off debt at a later stage, the company will now face higher repayment costs on new debt given that interest rates have risen dramatically over the past year.
Arguably, this will worsen Transnet’s debt position – set at about R130-billion – with the company paying interest costs of R1-billion every month.
Transnet has another portion of debt worth almost R10-billion that has to be repaid by the end of December, with another R40-billion due over the next three years.
Transnet told Daily Maverick that it will deal with the debt that matures in December in the same way it did the debt that became due in November – by refinancing it.
“For the December maturity, Transnet will refinance the debt using operational cash flows and funding,” the company said in response to queries.
Lenders become nervous
The problem is that lenders are losing patience with Transnet and its continuous requests to extend debt repayments when they become due.
This can be seen in the short leash the PIC gave Transnet when it agreed for the debt due in November to be refinanced.
The PIC said it only extended/refinanced its due debt to 8 March 2024. In other words, the PIC gave Transnet a four-month extension to make the final repayment.
The debt has been extended just beyond the February 2024 Budget, where the government is expected to decide on the Transnet board’s request for financial assistance to deal with the company’s debt load and operational problems.
Read more in Daily Maverick: Transnet’s turnaround plan is premised on securing a R100bn ‘capital injection’ from government
The PIC makes investments into bonds (or debt) of state-owned enterprises (SOEs) on behalf of its biggest client, the Government Employees’ Pension Fund, which manages R2.3-trillion in pension savings belonging to public servants.
At R18.6-billion, the PIC is the largest holder of Transnet debt.
The PIC’s exposure to the debts of Transnet and Eskom has been reducing since 2019, a move that has been interpreted by some market watchers as the country’s largest investor taking a dim view of the parlous state of SOEs. However, the PIC maintains it is not nervous about the financial situation of SOEs and their ability to repay debt when it becomes due.
Read more in Daily Maverick: SA’s largest investor reduces its exposure to basket-case state-owned enterprises
In the investment community, Transnet is increasingly viewed as being risky to lend money to because it is burdened by debt expenses. This can be seen in its cash interest cover (a measure of a company’s ability to pay interest that is due on outstanding debt), which is sitting at 2.1 times, a decline from 2.6 times a year ago.
This means that Transnet’s ability to meet interest payments on debt is increasingly questionable.
Transnet’s debt situation almost came to a head in July last year when it came close to defaulting on a 10-year, $1-billion (about R17-billion at the time) international bond. This nasty scenario was avoided when Transnet renegotiated repayment terms with lenders and raised more debt to settle outstanding payments. DM