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New Transnet chair hints at possible equity injection as group slumps to R5.7bn loss

Transnet chairperson Andile Sangqu

Transnet chairperson Andile Sangqu

1st September 2023

By: Terence Creamer

Creamer Media Editor

     

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New Transnet chairperson Andile Sangqu has indicated that the troubled State-owned freight logistics group, which has hitherto prided itself on being financially self-sufficient, may require an equity injection to implement a turnaround strategy that is currently under development.

The group reported a net loss of R5.7-billion for the 2022/23 financial year on the back of a fall in rail and port volumes and a rise in finance costs to R12-billion from R10.5-billion and an increase in borrowings to R130-billion. In the previous financial year, Transnet reported a R5-billion profit, largely as a result of a R10-billion fair value adjustment, most of which related to its property portfolio.

Speaking at the group’s results presentation, Sangqu said the immediate focus was on a ‘back to basics’ recovery of the group’s operational performance, which continued to decline in the period under review.

However, he indicated that the yet-to-be-finalised turnaround plan would include financial restructuring to address the group’s high level of debt, which was translating into monthly repayments of R1-billion, and could require an equity injection.

Sangqu did not provide any estimate for such an injection and described the financial restructuring component as being at an early stage.

Nevertheless, he indicated that the group might need to approach the National Treasury, through Transnet’s shareholder Minister Pravin Gordhan, to assess the prospects of financial support to assist the turnaround.

Gordhan, who also participated in the results presentation, responded immediately by underlining government’s current fiscal constraints.

The Public Enterprises Minister indicated that the fiscal position could deteriorate further as a result of persistently low growth and a revenue-collection outlook that had been weakened by a decline in commodity prices and the fall in commodity exports as a result of Transnet’s underperformance.

Transnet’s financial position should be improved, he argued, primarily through an operational turnaround, as well as cost cutting and a “crowding in” of private finance through partnerships rather than privatisation.

Gordhan called for urgent and corrective action, particularly within Transnet Freight Rail (TFR), which recorded a 13.6% fall in volumes to 149.5-million tons from an already low 173.1-million tons in the previous year. In 2017/18, rail volumes were above 220-million tons.

TFR’s export coal volumes fell to 49.7-million tons (58.3-million tons), iron-ore to 51.1-million tons (54.6-million tons) and general freight to only 49.7-million tons (60.2-million tons), which translated to a revenue decline at the unit of 7.9% to R34.8-billion and a 40.5% slump in earnings before interest, taxes, depreciation, and amortisation to R6.7-billion.

CEO Portia Derby described the year as having been “harrowing” and attributed TFR’s poor performance to a 25% reduction in available locomotives relative to the position five years ago, as well as ongoing cable theft.

LOCOMOTIVES OUT OF SERVICE

The decline in locomotive availability was an even more acute 32% on the export coal corridor, owing to an ongoing dispute with CRRC of China whose locomotives operate on the corridor.

Derby reported that there were 315 locomotives out of service at the end of March and that the figure had increase to 377 since then, resulting in an available fleet of only about 1 400 locomotives.

She reported that plans had been concluded with most of the original-equipment manufacturers to begin returning the locomotives to service, and expressed optimism that progress would also be made with CRRC, despite its ongoing disputes with both the South African Revenue Service (SARS) and the South African Reserve Bank (SARB).

Gordhan, who travelled to China in May in an effort to negotiate a breakthrough, said “constructive discussions” with CRRC to secure the spares required to return idle locomotive to service, as well as to ensure the delivery of a further 99 units, had been held.

However, he acknowledge that progress required “sign-off” from both sides and that some of the South African processes needed to be “accelerated”.

Derby reported that significant progress had been made with SARS to ensure CRRC received a tax certificate, but there was still a need for the SARB to regularise the company’s bank accounts so that, when payments were made, the cash was not forfeited.

Derby also expressed optimism that the National Logistics Crisis Committee (NLCC) would assist it in addressing its locomotive shortages, reporting that there had already been an agreement regarding Transnet proceeding with procurement ahead of a funding plan, but she did not provide further details.

“It is envisaged that the collaborative effort with the NLCC will reposition Transnet for growth in the medium-term,” she said, while Sangqu reported that two board members had been assigned to participate in the NLCC.

                                                                                  

Edited by Creamer Media Reporter

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