State-owned rail company Transnet has increased its capital investment spend by 5.7% year-on-year, achieving a record R33.6-billion investment for the 2014/15 financial year, the company announced at its financial year-end results earlier this month.

A breakdown of Transnet’s capital expenditure revealed that rail accounted for 74% of the total spend, with infrastructure and equipment investments for the year amounting to R14.5-billion, while R19.1-billion was set aside to maintain the existing capacity of its rail and port businesses.

Transnet CFO Anoj Singh highlighted that the company would probably spend another R33-billion on capital investments during the current financial year and, while the 57%:43% ratio for the 2014/15 financial year was in favour of capital replacement and maintenance, the company would increase capital replacement spend to 45%.

Further, the results revealed that Transnet had progressively increased its capital investment spend over the years, achieving a 22.2% increase over three years and a 56.1% increase in the last five years.

Meanwhile, the company highlights Transnet Freight Rail’s (TFR’s) inclusion of 147 new electric locomotives into general freight business operations as an infrastructure investment milestone for the company.

Further, the coal line received and tested 61 new electric locomotives, with an additional 39 scheduled for completion before the end of the calendar year. Transnet Engineering also built and delivered 2 700 wagons for TFR.

Transnet also highlights the R466-million investment to increase the capacity of the manganese line to 16-million tons a year by 2019 as a key milestone for the company, which would be achieved by upgrading the rail network between Hotazel, in the Northern Cape, and Coega, in the Eastern Cape, as well as building a new bulk terminal in Ngqura, in the Eastern Cape.

Another highlight for the rail operator is the R411-million invested on expanding the coal line to 81-million tons a year by upgrading yards, lines and electrical equipment.

Meanwhile, Transnet successfully raised R34.1-billion from various funding sources, including export development agencies, commercial paper and domestic bonds, during the year under review,

Meanwhile, the company was confident that it would secure the R28-billion funding it required for the current financial year, highlighting that it had concluded a number of agreements with financial institutions, including a R30-billion deal with China Development Bank, a R6-billion guarantee from US-Exim Bank and a R7-billion loan from Export Development Canada and Investec. All three funding agreements were linked to funding Transnet’s locomotive fleet renewal programme and will be drawn over a number of years.

Transnet’s gearing – a key consideration for investors and rating agencies – improved to 40% from 45.9% as a result of the first-time revaluation of rail infrastructure. This is well below the company’s self-imposed ceiling of 50% and leaves significant headroom for raising funds in its capital investment programme.

Another key consideration for investors is that the cash interest coverage ratio, which is 3.6, remains significantly above the 3.0 target, while last year it was 3.7.