State-owned enterprise Transnet and the Agence Française de Développement (AFD) have concluded a R2,2-billion (€200-milion) loan agreement to part-fund the freight logistic group's R4,6-billion Cape Town Container Terminal expansion programme.

Transnet acting CEO Chris Wells said that the AFD loan, which was signed on Wednesday in Cape Town, was, by far, the biggest single funding initiative for one project.

The loan would be used to help fund the expansion of the port's container terminal capacity to 1,4-million TEUs a year by 2012, and formed part of Transnet's R80-billion investment programme.

"What makes the agreement with AFD particularly attractive to us is that although the loan is in euros, it can be disbursed to us in rand, a move that will boost our ability to manage our financial risks, particularly foreign exchange risk," said Wells.

He added that the loan was in line with Transnet's funding strategy and was testimony to the "attractiveness and bankability" of the projects that the group was undertaking as part of its five-year capital programme.

Wells told journalists it was likely that the funding required for its R80-billion expansion programme would increase by 10%. The group was currently conducting a review of the programme, which would be concluded by February.

However, he was confident that Transnet would be able to raise the necessary funding for the expansion going forward.

HISTORIC PARTNERSHIP

AFD CEO Jean-Michel Severino said that the French development bank's investment in the port of Cape Town fulfilled a key component of the AFD's country partnership strategy for 2009 to 2011.

The loan, which would be rolled out over 15 years with a three-year grace period, was the first loan agreement with Transnet and strengthened the partnership between South Africa and France.

"This loan addresses our aim to reinforce South Africa's productive sector for providing financial support for investment programmes that have been developed by State-owned enterprises," said Severino.

He continued that the AFD was in full support of Transnet's expansion plans and said he believed that it would build the port's capability to meet the growing capacity demand.

The expansion of the Cape Town port involved the deepening of the entrance channel, the refurbishment of the berths, the replacement of container handling equipment and acquisition of new equipment. It also included the reconfiguration of onshore areas to provide additional stack capacity and to improve land access.

"The AFD is also confident that this will play a major role in stimulating the South African economy and sustaining the jobs for South Africans working at the ports and the construction companies implementing the projects."

According to Severino, the agreement with Transnet was by far the largest loan that AFD had negotiated in Sub-Saharan Africa this year.

The AFD had invested some €2,3-billion in Sub-Saharan Africa this year.

This week, the AFD would be signing deals worth R3,5-billion in South Africa.

It would ink a €100-million deal with the Development Bank of Southern Africa, a €20-million deal with the National Housing Finance Corporation for affordable housing and an agreement with the Central Energy Fund.

Severino also stated that, if the South African government were willing to change its stance on not borrowing from international development banks, the AFD would be very willing to engage on funding options.