State-owned logistics group Transnet has sought to refute reports that demand for its bonds had collapsed following the recent downgrades to South Africa’s credit rating, insisting that appetite for its bonds remains strong both domestically and internationally.

CFO Garry Pita said the reports arose following recent auctions where Transnet decided not to allocate domestic bonds at the prices being offered. “I can tell you that there was appetite– it’s just that Transnet didn’t allocate at the prices that were provided. Transnet is not desperate for money – if it doesn’t get a spread that is in line with our requirements, we won’t allocate.”

The group raised only R1-billion of the R17-billion it borrowed in 2017 through domestic bond issuances. In 2016, by contrast, the group raised R4.6-billion through domestic bond issuances.

However, Pita said that as much as R5-billion could be secured in 2018 from the domestic capital markets. Transnet was budgeting to raise R24.3-billion during the current financial year to support its capital expenditure (capex) plans.

“Transnet has a standalone credit profile from S&P Global Ratings of BBB, which is higher than the sovereign and higher than [the ratings of] most institutions that are giving us money,” Pita stressed, noting that it had not received a government guarantee since 1998. “We have a wide range of sources of funding, which currently total over R130-billion,” he added.

Feedback from foreign investors during a recent nondeal roadshow had also been positive. “In the last five years, we’ve had the highest inflow in emerging market bonds of over R45-billion and, although it is expected to tighten once the US tightens its monetary policy, the international investors showed a lot of appetite for Transnet bonds.”

However, to sustain its attractiveness in the context of South Africa’s economic downturn, Transnet had, once again, cut its capex forecast for its rolling seven-year market demand strategy (MDS).

Two years ago, the group reduced its capex programme from R336-billion to R277.8-billion and that figure had since been reduced further to R229.2-billion. In addition, it integrated a so-called merger and acquisition (M&A) ‘war chest’ of R20-billion into the MDS.

In 2017, Transnet invested R21.4-billion in capex, having invested R25.6-billion in the previous year – the group reported peak capex of R33.6-billion in 2015.

Pita indicated that R24.4-billion would be spent during 2018, rising to R27.2-billion in 2019 and R32-billion in 2020. Of that, R1-billion had been allocated for M&A activities in 2018, rising to R2-billion and R4-billion in the subsequent years.

Transnet would target opportunities in the rest of Africa as well as the Middle East and Asia, with CEO Siyabonga Gama noting that the group was participating in a GE-led consortium on a $2.2-billion railways concession in Nigeria. The other partners include APM Terminals, of the Netherlands, and China’s Sinohydro.

The concession will reportedly cover about 3 500 km of existing narrow-gauge lines from the south-western commercial capital, Lagos, to Kano, in the north, and from the south-eastern oil hub of Port Harcourt to Maiduguri, in the north-east.

In addition, Transnet Port Terminals recently secured a 20-year concession in the Port of Lamu, in Kenya, and Gama said further M&A announcements would be made in the coming weeks.

Despite weak domestic market conditions, Transnet increased revenues by 5.3% to R65.5-billion in 2017 and reported a strong recovery in profits to R2.8-billion, from R393-million in 2016.