S&P Global Ratings has given Transnet a further three months to address its tight liquidity and acute refinancing risks through multiple debt-raising initiatives, in spite of some progress on this front.
On Friday, the rating agency said Transnet was making steady progress with the implementation of its business and funding strategy, which will address concerns it raised last year.
The ratings agency placed Transnet’s foreign currency, local currency and stand-alone credit profile ratings on credit watch with a negative outlook in November 2021, citing the company’s deteriorating liquidity position.
S&P had warned that it could lower all its ratings, potentially by multiple notches, if Transnet was unable to make significant progress toward obtaining covenant waivers, refinancing its upcoming debt maturities and bolstering its liquidity levels.
It characterised Transnet’s liquidity as “less than adequate” and drew attention to the company’s “high amount of debt subject to varied and complex covenants, which is uncommon for similarly-rated peers”.
Transnet was then given three months after the publication of S&P’s credit watch notice “to resolve the situation and make significant progress on its refinancing plans”.
However, S&P primary credit analyst Munya Chawana on Friday said Transnet had taken several positive steps toward addressing its covenant, liquidity and refinancing challenges in the three months since its CreditWatch placement.
Chawana said Transnet had, in particular, obtained waivers on about R42 billion of loans that were subject to covenant violations at end-November 2021.
“This enabled Transnet to also engage with lenders regarding its funding plans, and we understand that it is progressing on all the funding initiatives disclosed,” Chawana said.
“These include domestic and foreign debt capital market issuances, a US dollar-denominated syndicated loan of up to $1bn, and bilateral loans.”
Since the beginning of this calendar year, Transnet has managed to raise R2.5bn under its domestic medium-term note programme.
Chawana, however, said S&P continued to view Transnet’s liquidity and refinancing risks as elevated, in spite of the progress.
Transnet is still recovering from the impact of “State capture” as it awarded contracts, estimated at more than R42bn, irregularly for the acquisition of locomotives.
The company incurred a loss of R8.3bn in the 2020/21 financial year, after a profit of R2.9bn in the previous financial year, mainly due to Covid-19 disruptions.
Chwana said the company's interim results for the six months ended September 30, 2021 indicated performance in line with S&P expectations.
“However, Transnet's debt repayments for calendar year 2022 are about R22bn, versus our expectation of cash funds from operations before capital expenditure of about R16bn, with a $1bn notes issue due in July,” he said.
“Consequently, we are extending our CreditWatch by 90 days and will closely monitor Transnet's progress toward bolstering its liquidity and, in particular, refinancing its large July maturity.
“If we receive information during this 90-day period that provides sufficient clarity on the evolution of liquidity and refinancing risks, we will conduct a review and take appropriate rating action.”
BUSINESS REPORT ONLINE