S&P Global Ratings has placed Transnet on CreditWatch following the agency’s annual assessment of the state-owned entity. While the agency has maintained Transnet’s ‘BB-‘ issuer credit rating and reaffirmed its national scale ratings in South Africa at ‘zaAA-/zaA-1+’, this decision underscores rising concerns regarding the company’s financial forecasts.
S&P acknowledged that improvements in Transnet’s operations are anticipated to occur gradually, with the company’s cash flow expected to increase neither quickly nor significantly enough to sustain its current liquidity, leverage, and capital structure. Additionally, substantial capital expenditure requirements coupled with debt servicing pressures hinder the company’s ability to address operational deficits.
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The ratings agency further emphasized that Transnet may require additional government assistance to navigate these challenges.
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“We believe that the company will likely need additional government support to transform its capital structure, finance capital expenditures, and meet forthcoming debt maturities,” S&P remarked.
“The placement on CreditWatch suggests a heightened risk of downgrade if the anticipated improvement in Transnet’s business performance and cash flow generation does not materialize soon enough to manage current leverage levels and capital structure,” S&P stated.
In response, Transnet highlighted the initiatives it is launching to address these challenges through its Recovery Plan, ratified by the board in October 2023. Group Chief Executive Michelle Phillips underlined the plan’s vital role in improving operational and financial performance.
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“The measures aimed at achieving the desired financial recovery and operational excellence include enhancing the availability and reliability of rolling stock and rail network infrastructure, as well as implementing strategies for operational excellence to increase productivity, reduce downtime, and enhance service delivery,” Phillips reported.
Transnet also mentioned that management will keep S&P updated in the coming months regarding progress on operational improvements, capital investment strategies, and adjustments to its capital structure.
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