Transnet has been placed on review by ratings agency Moody’s Investors Service.
The State-owned entity faces a potential credit rating downgrade due to liquidity concerns and refinancing risks.
Moody’s said it had “placed Transnet’s corporate family rating (CFR) of Ba3 and the probability of default rating (PDR) of Ba3-PD on review for downgrade.”
“Transnet's Baseline Credit Assessment (BCA) of b2, a measure of standalone credit quality prior to any assessment of potential extraordinary government support, was also placed on review for downgrade.”
The ratings agency noted that it had great concern about Transnet's weakening liquidity profile.
“Available liquidity, which comprises cash balances, expected free cash flow generation, and undrawn committed debt facilities, has reduced substantially since April 2023, which was the beginning of the 2023/24 financial year for Transnet”.
Moody’s also said that Transnet failed to refinance upcoming maturities well in advance after a successful issuance of a $1 billion (around R18.6 billion) international senior unsecured bond in February 2023.
The fact that the rail company lost its CEO and CFO in October also led to this decision by Moody’s.
In a statement last week, Moody’s said that the company remains without top management, and this could weaken its governance.
Transnet has a substantial debt burden, and according to interim chair Andile Sangqu, this hampers the company’s ability to generate cash in order to survive and stay viable.
“The debt that Transnet carries is a challenge, but at the same time, its operations are also a challenge,” Public Enterprises Minister Pravin Gordhan told Business Times.
Last week, the Public Investment Corporation (PIC) said that it would give Transnet a four-month reprieve on the debt it is owed.
Transnet was due to pay the PIC R7 billion on November 6.