Transnet hit over Eskom’s bad play
Looking for finance overseas
AS ESKOM sank deeper into junk status after yet another downgrade from S&P Global Ratings yesterday, Transnet said it had borne the brunt of downgrades to South Africa’s sovereign credit rating despite a strong financial position.
In an exclusive interview with Business Report yesterday, Transnet chief executive Siyabonga Gama said the freight, rail and transport logistics company would tap the international market to raise money as a consequence of the relatively illiquid domestic market.
Gama said Transnet continued to generate cash from operations.
“We are growing earnings before interest, tax, depreciation and amortisation (Ebitda) in multiples more than 10 times the (Gross Domestic Product) growth,” Gama said.
“Transnet has very sound fundamentals. Our net debt to Ebitda is more than 3.6 times, cash interest cover is more than 2.8 times. Our Ebitda margins have grown from 32 percent to 44 percent.”
S&P downgraded Eskom’s rating from B- to CCC+, saying the government’s support to the power utility in the past few months had been insufficient.
S&P said Eskom was at risk of facing a distressed exchange situation or default in the next six months despite securing R30 billion in short-term funding from local and international funders so far this year.
S&P said despite recent indications that the government would lend support to the country’s troubled state-owned enterprises, “the support framework set forth in the Budget speech on February 21 fell short of our expectations.” It said the Budget did not adequately address the amount and timing of financial support given Eskom’s imminent forthcoming liquidity requirements.
Gama, however, said that Transnet had been affected by a “negative narrative” about state-owned companies.
“It does. Is all of it of our making? Maybe not. But we live in South Africa (and) South Africa has been downgraded,” he said. “The domestic market is not liquid. If you look at it from a risk-taking perspective, South Africa Inc probably has a worsening outlook because of downgrades.”
Gama said Transnet could “and we will” resort to the international markets to raise money for its ongoing capital expenditure programme.
“Our fundamentals are strong,” he said. In the six months to September 30, Transnet’s capital investment was R8.9bn. He said commercial banks’ appetite for risk was low.
“However, we have a few borrowing lines open to us where we can still continue to tap into the domestic market,” he said, adding that the funding strategy included accessing funds from development finance institutions, commercial paper and call loans, export credit agencies and domestic bonds.
Source
“The issue for us is that we need to pursue longer-term funding which would be price competitive. The foreign markets are probably a better source for us, given the tightness in the domestic market that comes with the credit downgrades,” he said.
In a statement yesterday, S&P gave former finance minister Malusi Gigaba’s Budget speech a thumbs down, saying it lacked details on how the government would address Eskom’s imminent liquidity requirements.
Eskom interim chief executive Phakamani said the S&P downgrade was largely based on the strain on the power utility’s liquidity levels.
“We have been and continue to be in extensive engagements with key stakeholders to resolve Eskom’s current governance related and liquidity issues,” he said.
Acting chief financial officer Calib Cassim said the timing of the downgrade was “unfortunate” as Eskom was seeing improvements in markets sentiments.
“We will continue to engage with the rating agencies and various key stakeholders on the implementation and progress of the turnaround strategy with the ultimate goal of providing enough comfort to investors that we are on a path to stabilising Eskom’s operational and financial profile,” said Cassim.
Meanwhile, Eskom announced yesterday that it had signed a R20bn short-term credit facility with a consortium of local and international banks. The government-guaranteed facility will form part of the financing of Eskom’s current capital expenditure.