Moody’s Investors Service has placed troubled Transnet’s credit rating on review for a downgrade due to reflecting the credit agency’s “increasing concern” about the logistic parastatal’s weakening liquidity profile.
A lower rating action can trigger stricter regulatory scrutiny, which can make lending to borrowers with downward-adjusted loans more costly.
Moody’s said it would aim to conclude the review within the coming weeks.
The review would focus on Transnet’s progress in securing new financing as well as assessing the likelihood and materiality of any government support.
The review would also be used to reassess the positioning of Transnet’s Baseline Credit Assessment (BCA) in the light of its deteriorating operating and financial performance.
A JSE Stock Exchange News Service notified investors yesterday that Moody’s had issued a ratings action on Friday.
Moody’s said Transnet’s Corporate Family Rating (CFR) of Ba3 and the probability of default rating (PDR) of Ba3-PD was on review for downgrade and its BCA of b2, a measure of stand-alone credit quality prior to any assessment of potential extraordinary government support, was also placed on review for downgrade.
Moody’s said Transnet’s available liquidity, which comprises cash balances, expected free cash flow generation and undrawn committed debt facilities, had reduced substantially since April, which was the beginning of the 2023/24 financial year.
“This is because the company did not refinance upcoming maturities well in advance as the rating agency expected it would do, following the successful issuance of a $1 billion (R19bn) international senior unsecured bond in February 2023,” it said.
In addition, as of June 2023 its available liquidity facilities had reduced to R4.1bn because R7.2bn of the previously R13.3bn facilities had become uncommitted.
Moody’s said it expected this had reduced further following the repayment of a R7bn local bond on November 6, which was only partially refinanced with a new short-term bond of R4.6bn.
Transnet had additional debt maturities of around R10bn from December 2023 to March 2024 (including the R4.6bn short-term bond issued to refinance the November 6 maturity).
Moody’s said it expected existing sources of liquidity would only marginally cover these maturities and therefore the company was dependent on raising new financing in short order.
The company also had a concentrated maturity profile in the following years with a total of R96bn of debt maturing until March 2028.
Moody’s said it viewed weakened liquidity as a governance-related risk.
It also pointed out that after the resignation of the company’s former CEO, Portia Derby, and chief financial officer, Nonkululeko Dlamini, in October, Transnet also remained without a permanent top management team, which further weakened governance, although the appointment processes for these two critical positions has commenced.
“Moody’s understands the company is working on several new financing initiatives, but believes it will become increasingly difficult to access new financing without government support. Transnet’s operational performance has continued to weaken in financial year 2022/23 and the turnaround plan that was submitted to the government in October explicitly requires an equity injection to fund the company’s capex backlog and sustainably improve operations,” it said.
Last month, Transnet’s board chairperson, Andile Sangqu, said the South African rail and port company was looking for a government bailout that local media reports put at R100bn.
This was as Sangqu outlined plans to rationalise loss-making activities, dispose of non-core assets and rope in private players in a turnaround bid.
Moody’s said it continued to expect that Transnet would benefit from a degree of government support. This had been reinforced by Finance Minister Enoch Godongwana’s statement in Parliament during the Medium-Term Budget Policy statement speech that the government would work with the company to ensure it could meet its immediate debt obligations.
“However, there has been no tangible support framework announced thus far, and the uncertainty around the materiality and timeliness of the support has heightened liquidity and refinancing risk for Transnet,” it said.