Transnet secures ‘club loan’ deal

A Transnet electric locomotive in Pretoria. Transnet has raised R12 billion through a syndicated loan with five lenders to fund spending on new trains. Picture: Kopano Tlape, Department of Communication

A Transnet electric locomotive in Pretoria. Transnet has raised R12 billion through a syndicated loan with five lenders to fund spending on new trains. Picture: Kopano Tlape, Department of Communication

Published Nov 24, 2015

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Johannesburg - Transnet had raised R12 billion to fund the acquisition of more than 1 000 locomotives through a “club loan” with five major local financial institutions, the state-owned rail and logistics giant said yesterday.

Transnet chief financial officer Garry Pita said, during the signing ceremony held in Johannesburg yesterday, the loan brought Transnet’s funding for new trains to R48bn.

Absa, Nedbank and the Bank of China had each agreed to fund R3bn respectively, while Futuregrowth Asset Managers and Old Mutual Specialised Finance would both fund R1.5bn each. “The company will use the proceeds of the loan to fund its locomotive fleet acquisition programme,” Transnet said.

Record-breaking

The purchase of trains from companies, including General Electric and Bombardier, “is the single-biggest item of Transnet’s record breaking infrastructure investment”, it added.

Pita said the size of the loan was significant. “This loan shows there is a lot of appetite towards not only South Africa, but Transnet too. You are not likely to get this kind of money all at once given the liquidity of the market,” Pita added.

He said the company was in a strong financial position with R16.5bn of committed facilities that were available and R30.8bn, which was not committed. The acquisition of locomotives would help increase volumes while lowering the average age of the company’s fleet, Transnet said.

The cash injection comes amid a commodity price slump that has seen customers’ demand for Transnet’s trains, which transport coal and iron ore, slowing down.

The iron ore spot prices dropped by about 40 percent this year and were expected to fall below $40 a ton by year end, while coal had reached a long-term low this year.

The company said last month it was slowing some investment and shifting from a previous seven-year investment plan amid slumping commodity prices.

Transnet chief executive Siyabonga Gama said the loan matured in 15 years with a 54-month grace period and had been negotiated separately with the institutions, but on similar terms at competitive rates. He said the company would continue investing in its expansion plan despite South Africa’s subdued economic growth prospects and would work towards convincing business to invest.

The weak economic growth outlook coupled with weak commodity prices saw Transnet announce last month that it had put the brakes on its multibillion-rand rail, port and infrastructure programme by spending between R340bn and R380bn over 10 years, as opposed to a previous plan to invest R337bn over seven years.

We have a counter cyclical strategy, we are working closely with our customers, and we do not want to add capacity ahead of demand. In difficult times, customers tend to develop myopia, they do not want to invest. We have to encourage people to invest. We cannot stop investing,” Gama added.

The proceeds from the loan are set to be used to acquire the 1 064 diesel and electric locomotives that were at the centre of its capital investment programme to grow volumes.

Contracts

Transnet had awarded CSR Zhuzhou Electric Locomotive and Bombardier Transportation contracts to build 599 electric locomotives, while General Technologies and CNR Rolling would build 465 diesel locomotives. All except 70 would be built at Transnet Engineering’s plant in Koedoespoort, Pretoria, and Edwin Swales in Durban, the company had said.

In addition to the R12bn loan, Transnet agreed to a $1.5bn with the China Development Bank (CDB) in June. Transnet could choose to increase the CDB loan to $2.5bn as part of a memorandum of understanding between the two countries.

The company had previously raised R6.992bn from the Export Development Bank Canada, R2.760bn from German government-owned KFW Development Bank, and a R6bn guaranteed loan from the US Export-Import Bank financed by Absa, Standard Bank and Old Mutual Specialised Finance.

* Additional reporting by Bloomberg

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