China loan for Transnet’s Chinese trains

TRANSNET’S R30-billion loan from China Development Bank could be the first of many mega-loans made available to local state-owned enterprises by Chinese lenders as China looks for partners to help sustain its economic growth.

But amid the excitement about this week’s deal were words of caution. At issue is the extent to which the government can ensure the bulk of the R30-billion loan (earmarked for the purchase of locomotives from a Chinese company) is spent in South Africa and not in China.

“This looks like a good deal for South Africa,” said one China analyst. “There’s a currency hedge element, a four-anda-half-year grace period and the supplier of the locomotives is world-class. It is significantly different from the ‘resource for loan’ deals that China has tended to do across Africa.”

But he said the critical issue would be ensuring China Rail, a merger of China South Rail and China North Rail, sourced 55% to 60% of the locomotive parts locally. “Otherwise South Africa is merely borrowing money from China to buy goods from China.”

The loan will help pay for 1 064 locomotives that are part of Transnet’s R337-billion recapitalisation. Under a contract awarded last year, consortiums that include China South Rail and China North Rail will supply the locomotives.

Transnet spokesman Mboniso Sigonyela said all but 70 of the locomotives would be built locally at Transnet Engineering plants. All the companies that won the contract “exceed- ed the minimum local content criteria for rolling stock”.

Analysts say the deal reflects China’s ability to support the growth of its large industrial companies with the huge financial reserves of statebacked financial institutions.

“There is massive overcapacity in China,” said Martyn Davies, CEO of Frontier Advisory, “so Chinese manufacturers are looking outside China for growth opportunities.” — Ann Crotty