South African transport utility Transnet was currently preparing the necessary documentation and fulfilling the legal requirements for a R5-billion global bond issue, acting CEO Chris Wells said on Wednesday.

However, he provided no details as to the timing of such an issuance, saying only that the group intended to enter the European and North American markets as soon as the net costs of raising foreign-market bonds became attractive again.

“We are watching it daily, and there will come a time, in the short- to medium-term, when the pricing will be right and we will issue a R5-billion or so bond into that market,” Wells said.

The State-owned enterprise (SoE) had already established a domestic medium-term note programme, which it was currently tapping at a rate of R1-billion a month and which would remain the “backbone” of its funding strategy.

“But as other South African SoEs increasingly move to tap the domestic bond market, one has to have alternative sources,” Wells said in a presentation in Sandton.

The international markets would be accessed through a so-called global medium-term note programme, but only once the “spreads” between emerging-market and developed-market debt had narrowed.

In the wake of the global financial crisis and associated credit crunch, emerging markets and their companies had been “penalised”, with investors demanding higher spreads, which had effectively shut off that source of funding to the developing world.

“The amount of funding we need . . . is intense over three years and aggregates to R27-billion,” Wells said, arguing that, while its current projections showed net surplus cash positions for the 2012/13 and 2013/14 periods, it was likely that these would not materialise as new projects were added as growth resumed.

The group is looking to tap several funding sources over-and-above the issuing of bonds, including:

• Development finance institution capital, with an African Development Bank due diligence exercise already under way;
• Loans from domestic and foreign institutions, including a deal with the Japanese Insurance Corporation, which was in place but awaiting improved rand-to-yen swap rates;
• The issuance of commercial paper for short-term funding purposes; and
• Export credit-agency finance, placed with agencies in the countries from where Transnet was importing capital equipment.

Transnet had recently recommitted itself to an R80,5-billion five-year capital programme, and had budgeted for a R12,9-billion funding shortfall in 2009/10, as it prepared to spend nearly R22-billion on capital projects in that financial year.

Capital expenditure over the next three years was being budgeted at R57,7-billion, which Wells indicated would be funded through borrowings of R28,4-billion and cash from operations of R29,3-billion.

The group spent R19-billion on capital programmes in the year ending March 31, 2009, a 22% increase on the R15,6-billion it spent in the previous year.

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