Lenders agree to relax downgrade triggers
South Africa’s freight logistics utility, Transnet, has reached agreement with the majority of its lenders to relax covenant triggers in respect of its R30.1-billion debt. These triggers would otherwise be brought into play in the event that South Africa is downgraded to junk in December.
Transnet’s credit rating is currently pegged at investment grade, but is inextricably linked to that of the sovereign, owing to the fact that it is wholly State-owned. Therefore, any downgrade of South Africa to subinvestment grade would also result in Transnet being downgraded.
CFO Garry Pita stressed that the move did not imply that Transnet believed that South Africa would definitely be downgraded. “In fact, quite the opposite — we don’t believe that there will be a downgrade.”
Nevertheless, the group is preparing for “any eventuality”.
Transnet currently has debt of R127-billion, but the triggers apply to only R30.1-billion of that debt.
Pita noted, too, that Transnet had raised debt on the strength of its own balance sheet, having last had a government guarantee in 1999.
“We have gone to our lenders that have triggers in our arrangement that say that we potentially have to pay back that R30.1-billion, or [face] increased finance charges. We have said that, on the strength of our balance sheet and on the back of our strong standalone credit profile, they should relax those triggers to below junk status.”
He reported that 96% of lenders had agreed and that it was finalising the paperwork with the rest.
“That would mean that, if the sovereign were to be downgraded, Transnet would have mitigated that risk.”
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