Treasury says equity injection can be averted as it unveils R47bn Transnet guarantee

1st December 2023 By: Terence Creamer - Creamer Media Editor

Treasury says equity injection can be averted as it unveils R47bn Transnet guarantee

Finance Minister Enoch Godongwana

A R47-billion guarantee facility, effective immediately, has been extended to struggling State-owned freight logistics group Transnet in support of its recovery plan and to meet its immediate debt obligations.

The guarantee was announced following concurrence between Finance Minister Enoch Godongwana and Public Enterprises Minister Pravin Gordhan and follows a high-level meeting between government and business earlier in the week at which business leaders argued for immediate financial support for Transnet to address its port congestion crisis and to arrest the collapse in the rail service.

In a statement, the National Treasury said that Transnet would drawdown an initial amount of R22.8-billion to deal with immediate liquidity matters such as settling maturity debt.

It added that no equity injection had been considered given that the Budget for 2023/24 was “closed” and expressed confidence that the guarantee facility, alongside swift implementation of the Transnet Recovery Plan, would be sufficient to resolve the State-owned company’s challenges.

When announcing the Transnet Recovery Plan, Transnet chairperson Andile Sangqu said that the success of the plan would hinge on shareholder support. Media reports indicated that Transnet has requested relief covering R61-billion of its R130-billion debt, as well as a R47-billion equity injection.

Godongwana reacted coolly to the request, saying in a Medium-Term Budget Policy Statement media briefing that further engagements were required before support could be extended, and expressed unhappiness that Transnet had seemingly simply presented the National Treasury with an “invoice”.

He also stressed that any support to State-owned companies would need to be governed by strict conditions, pointing to those that had accompanied recent support extended to Eskom and Denel.

In the statement, the National Treasury said a “Guarantee Framework Agreement between the National Treasury, Department of Public Enterprises, and Transnet will include strict guarantee conditions that will be continuously reviewed and amended when deemed necessary”.

It added that any further drawdowns would be subject to Transnet meeting those conditions.

“A Guarantee Framework Agreement must be concluded between National Treasury, the Department of Public Enterprises and Transnet within 14 days of the activation of the guarantee to ensure that any fiscal risks are mitigated and that the conditions of the facility are fully agreed to by all parties.

“In addition, National Treasury will continue to work with Transnet to pursue other initiatives to revive its operations and financial viability,” the statement reads.

Godongwana also emphasised that government continued to pursue deep-running, broader reforms of the company and the logistics sector as a whole, adding that “without a comprehensive reform of the sector, rather than that of a single entity, we risk being faced with similar challenges in the future”. 

However, he also expressed confidence that the reforms needed to put Transnet back on track could be achieved if the entity committed to meeting the strict conditionalities attached to the guarantee and if its speedily implemented the reforms informed by the National Logistics Crisis Committee.

Transnet, the National Treasury added, would explore further the divestment of noncore assets, a reduction of its current cost structure, as well as alternative funding models for infrastructure and maintenance requirements.

“The latter includes but is not limited to project finance, third-party access, concessions, and joint ventures.”

Gordhan highlighted the fact that Transnet remained critical to the South African economy.

“A well-functioning logistics company is particularly important given the geographical distribution of economic activity in the country, our reliance on commodity and other exports, as well as our distance from key export markets.”

Road Freight Association (RFA) CEO Gavin Kelly said that, while the "bailout" was heartening, questions remained about whether Transnet had the management, operational foresight and control that was required to turnaround the business.

"The RFA is fully aware that there are both infrastructure and equipment interventions that require capital, but it remains convinced that an attitudinal and management change is required within Transnet, as well as the core supportive State-owned entities that are in the logistics supply chain. 

"The allocation of funding to Transnet is a good step in the right direction - and the RFA looks forward to seeing (and experiencing) vastly changed efficiencies from the port and rail services controlled by Transnet," Kelly added.