Fitch affirms Transnet’s rating, with negative outlook
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GLOBAL ratings agency, Fitch Ratings, has affirmed Transnet’s long-term foreign and local-currency Issuer Default Ratings (IDR) and senior unsecured rating at BB-. Fitch said the outlook on IDR was negative.
“Transnet’s ’bb’ Standalone Credit Profile (SCP) incorporates the near-to-medium-term impact of the Covid-19 pandemic on Transnet’s operational performance and financial profile as well as the company’s strong business profile, characterised by its near monopolistic market position in freight rail, services to eight commercial sea ports and multi-product pipeline for hydrocarbon products,” Fitch said.
Fitch viewed Transnet’s demand volatility in line with economic cycles in the port and pipelines segment.
However, it said the freight rail segment (about 55 percent of earnings before interest taxation depreciation and amortization for the 2020 financial year) was sustained by long-term take-or-pay contracts with diversified counter-parties, including miners, industrial companies and general freight trade.
Fitch said it assessed Transnet's SCP at “bb”, benefiting from its strong business.
“Structural weaknesses in the operating environment, funding needs due to capex, and legacy irregular expenditure issues constrain the SCP. The SCP is lower than JSC Russian Railways (bbb+), which has higher geographical diversity and a more conservative financial profile,” said Fitch.
Fitch also said Transnet’s national scale rating of “AA(zaf)”/Stable was lower than Namibian Port Authority (AAA [zaf]/Stable) primarily due to the latter’s high level of debt guaranteed by the government of that country.
Fitch said Transnet’s rating was constrained by the sovereign’s rating through its assessment of the strength of the links with the sovereign under the Government-Related Entities (GRE) rating criteria and parent and Subsidiary Rating Linkage (PSL) criteria.
In February Fitch revised Transnets’ SCP to “bb” from “bbb-”, driven by the likelihood of pandemic-driven weakening of its financial profile and ongoing irregular expenditure issues, but it remained higher than the South African sovereign rating.
Fitch had said that the Covid-19 pandemic-driven national lockdown in the first quarter of 2021 had a substantial impact on Transnet, despite the government classifying it as an essential service and its continuing operations.
Transnet’s revenues for the first half of 2020 fell 17 percent on the decrease in shipment volumes of coal, iron ore, manganese and other general freight commodities resulting from the sharp decline in economic activity in the country.
Fitch said it would no longer be providing a credit rating for this issuer. “The decision is a commercial one, it has no bearing on the issuer’s financial performance. We don’t provide further comment on the decision to withdraw the rating.”