S&P Global Ratings has placed Transnet on CreditWatch following the agency’s annual assessment of the state-owned company. While it has maintained Transnet’s ‘BB-‘ issuer credit rating and upheld its national scale ratings in South Africa at ‘zaAA-/zaA-1+’, this move underscores increasing apprehensions about its financial future.

S&P observed that although there are expectations for gradual improvements in Transnet’s operations, the company’s cash flow is unlikely to see rapid or substantial growth sufficient to sustain its current liquidity, leverage, and capital structure. Additionally, considerable capital expenditure requirements paired with debt servicing challenges leave the company hampered in addressing operational deficits.

The ratings agency also indicated that Transnet might require additional support from the government to navigate these challenges.

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“We believe the company is likely to need additional government support to restructure its capital, finance capital expenditures, and address forthcoming debt maturities,” S&P remarked.

“The CreditWatch listing suggests a higher likelihood of a downgrade if the anticipated recovery in Transnet’s business performance and cash flow doesn’t materialize swiftly enough to manage the current leverage and capital structure,” S&P added.

In response, Transnet highlighted the measures it is taking to address these issues through its Recovery Plan, which was approved by the board in October 2023. Group Chief Executive Michelle Phillips stressed the plan’s vital role in improving operational and financial performance.

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“The steps taken to achieve the necessary financial recovery and operational excellence include boosting the availability and reliability of rolling stock and rail network infrastructure, as well as executing operational excellence strategies to enhance productivity, reduce downtime, and improve service delivery,” Phillips noted.

Transnet also stated that management will provide regular updates to S&P in the coming months regarding progress on operational improvements, capital investment plans, and adjustments to its capital structure.

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