Photo by: Duane Daws
Transnet and China Export Credit Insurance Corporation (Sinosure) on Wednesday agreed to a $2.5-billion funding guarantee in a ceremony attended by South African President Jacob Zuma and his Chinese counterpart Xi Jinping, who is on a State visit to South Africa.
The news came in a flurry of deal-making on the eve of the first Forum for China-Africa Co-operation (Focac) summit in Africa, being held in Johannesburg this week. South Africa and China announced a number of other deals worth a total R94-billion on Wednesday.
The Transnet-Sinosure agreement was signed by Transnet’s acting group chief executive, Siyabonga Gama, and Sinosure’s Li Hao in the presence of South Africa’s Public Enterprises Minister Lynne Brown.
Transnet announced that it would use the guarantee to finance procurement of mechanical, electrical products and equipment from Chinese enterprises. It would also cover funding for operation, maintenance and other services from Chinese enterprises in South Africa.
Transnet and Sinosure agreed that the guarantee should preferably be used for railway, ports and pipeline projects in South Africa, but could be extended to other areas should the parties agree.
The credit terms are not intended to exceed 15 years, in line with Transnet’s stated objective of matching its liabilities with the life of assets.
The guarantee would enable Transnet to raise funds in the markets for the financing of its infrastructure investment programme, including acquisition and maintenance of its locomotive fleet. It guarantees Transnet favourable repayment terms, including longer tenor and competitive interest rates.
Chinese companies have won significant open and competitive bids to supply rolling stock and equipment to Transnet.
In April last year, Chinese manufacturers China South Rail Zhuzhou Electric Locomotive and China North Rail Rolling Stock were awarded contracts with Transnet to build 359 electric and 232 diesel locomotives, respectively. In 2013, Transnet bought seven new state-of-the-art ship-to-shore cranes for its port operations in Durban from Chinese original equipment manufacturer ZPMC.
The relationship extended to funding. In June, Transnet secured a $2.5-billion bilateral loan from China Development Bank.
Transnet has spent R108.9-billion on its rail, ports and pipelines infrastructure since it launched its market demand strategy (MDS) in 2012. This will increase to R125-billion by the end of the current financial year. Transnet plans to invest a further R340-billion to R380-billion over the next ten years, which could potentially take the MDS investment to a record R500-billion.
A statement from Transnet said that Wednesday’s agreement confirmed the continued attractiveness of Transnet’s portfolio of projects among major international investors. Crucially, it is in line with the company’s agreed funding strategy, which is premised on diversifying its investor base and sources of funding in a cost effective manner. Funding from the debt capital markets accounts for only a third of Transnet’s investment programme – the remainder will be raised from cash generated from operations.
Transnet raises funds on the strength of its balance sheet, with a standalone investment grade credit rating, and receives no funding or guarantees from the fiscus.