Transnet is at mercy of banks, Godongwana says

Transnet, the state-owned company that operates South Africa’s freight rail network and ports, is dependent on the patience of the financial institutions to which it owes money, the finance minister said.

Transnet said in December that it hadn’t reached the cash-to-interest interest cover ratio of 2.5 on some of the loans it has taken out. The company’s cash—to-interest ratio was 2.1 as of the end of September. Still, it said “the affected lenders have provided the required waivers.”

“They are breaching the covenants but the banks are not taking them on,” Finance Minister Enoch Godongwana said in an interview on Thursday in Johannesburg. “The trick is going to be whether the banks are going to agree to extend.”

Transnet, which said it spent R36.1 billion ($2.1 billion) on servicing debt in its last financial year, has come under increasing criticism from exporters after a series of problems saw the amount of coal railed slump at a time of record prices.

On Wednesday News24, a South African news site, reported that the Minerals Council, which represents mining companies including Anglo American Plc and Glencore Plc, in December wrote to Transnet’s chairman demanding that the management be changed and expressing concern about its debt covenants.

Transnet wouldn’t comment on the report and didn’t immediately respond to questions about Godongwana’s statements. Still, it said it had a strong relationship with the mining lobby group. The Minerals Council declined to comment other than to say it was working closely with Transnet.

If debt covenants are breached the lenders can call in the loans.

Godongwana, in October’s budget update, gave R5.8 billion to Transnet to repair flood-damaged infrastructure and to repair and maintain rail locomotives. About 3.8 billion rand of Transnet’s debt is guaranteed by the government, Treasury data show.