Transnet bailout: Govt equity injection crucial for turnaround plan

Embattled state-owned ports and logistics monopoly Transnet will need a bailout from the government for its proposed turnaround and recovery plan to succeed.

This message was clear in a briefing by Transnet chair Andile Sangqu and acting executives at the Port of Ngqura in the Eastern Cape on Thursday.

Sangqu and the executives would not be drawn into commenting on the quantum of the requested funding from the government.

Various media reports have however put the figure at over R100 billion. That (or even half the figure) will be a tough ask considering SA’s worsening fiscal position, with Finance Minister Enoch Godongwana warning about the need for budget cuts ahead of his mid-term budget speech next week.

With Transnet’s debt burden expected to hit R130 billion, acting group CEO Michelle Phillips said the group would “need support from the Department of Public Entreprises [DPE] and National Treasury” to deliver on its recovery plan.

Her comments were reiterated by a more forthright Sangqu: “We won’t deliver on our turnaround plan, if we [Transnet] don’t get an equity injection [from government].”

He conceded that Transnet “is not in a strong position” considering its debt burden, with R13 billion in annual interest costs, and no “legroom” with high interest costs “throttling cash flows”.

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Sangqu said the recovery and turnaround plan presented to government is aimed at not only “stabilising Transnet, but also positioning the group for growth”. He stressed the latter formed a key part of the plan, adding that “shareholder support is needed” for what he believes “is a credible plan”.

Asked if he regarded the equity request as a bailout request to government, Sangqu said he wouldn’t call it a bailout, as “Transnet has one shareholder” – the government.

“It would be the same as in the private sector, where [a private company in a similar situation] will lean on its main shareholders to capitalise the company through a rights offer [equity raise] or other ways… The same principles apply,” he said.

“We really hope that we have provided the basis of a case for the government to support the growth of Transnet,” he added.

Pushed for comment on how much equity support Transnet has requested from government, Sangqu remained tight-lipped. However, he remarked: “We can’t prescribe to the shareholder how much to give us and by when… But we want government to understand our constraints and that we are presenting a credible plan to turn the company around.”

Transnet’s acting group CFO Hlengiwe Makhathini also shied away from commenting on the quantum of government funding needed, but backed the chair, saying: “The support and funding is to implement the recovery plan.”