S&P Places Transnet on ‘Credit Watch’ Listing

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

S&P observed that although gradual improvements in Transnet’s operations are expected, the company’s cash flow is not anticipated to increase rapidly or significantly enough to support its current liquidity, leverage, and capital structure. Additionally, substantial capital expenditure requirements along with debt servicing pressures hinder the company’s ability to address operational shortfalls.

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

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“We believe that the company will likely need additional government support to reshape its capital structure, finance capex, and meet future debt obligations.”

“The CreditWatch placement signifies an increased likelihood of a downgrade if the anticipated improvements in Transnet’s business performance and cash flow generation do not materialize promptly enough to manage current leverage levels and capital structure,” S&P remarked.

In response, Transnet highlighted the initiatives it is undertaking to address these issues through its Recovery Plan, which received board approval in October 2023. Group Chief Executive Michelle Phillips emphasized the plan’s significance in improving operational and financial performance.

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“The steps towards achieving financial recovery and operational excellence entail improving the availability and reliability of rolling stock and rail network infrastructure, as well as adopting operational excellence strategies to boost productivity, reduce downtime, and enhance service delivery,” Phillips stated.

Transnet also indicated that management will keep S&P updated in the coming months regarding progress on operational enhancements, capital investment strategies, and adjustments to its capital structure.

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