Crisis-hit state ports and logistics monopoly Transnet will get a bail-out, with National Treasury confirming that it has issued the group with “a support package of R47 billion to support a recovery plan, including meeting its immediate debt obligations”, in a joint statement with the Department of Public Enterprises (DPE) on Friday morning.

The National Treasury’s hand has been forced to make this emergency move with Transnet’s woes worsening in the last month, which has caused massive backlogs at most of South Africa’s ports in the middle of the busy festive season. It comes just a month after Finance Minister Enoch Godogwana refused to give Transnet a bailout or any sort of support in his October medium-term budget.

“The Minister of Finance has concurred with the Minister of Public Enterprises [Pravin Gordhan] to issue Transnet with a R47 billion guarantee facility effective immediately in support of its recovery plan including meeting its immediate debt obligations. Transnet plays a central role in the South African economy and the government’s goal of inclusive growth…,” the Treasury and DPE noted in the statement.

“The entity [Transnet] has suffered significant operational, financial and governance challenges in recent times and is struggling to fulfil this strategic role,” Treasury added.

“In recognition of the seriousness of these challenges, the National Treasury and the DPE have been working with Transnet to find a solution to the company’s immediate and longer-term problems, and the decision to grant the guarantee facility is a result of these discussions,” it said.

“Government continues to pursue deep-running, broader reforms of the company and the logistics sector as a whole. Without a comprehensive reform of the sector, rather than that of single entity, we risk being faced with similar challenges in the future.”

Initial drawdown of R22.8bn

“The financial support package provided for the entity is a R47 billion guarantee facility against which Transnet will drawdown an initial amount of R22.8 billion to deal with immediate liquidity matters such as settling maturity debt.”

“Government has not considered an equity injection given that the budget for 2023/24 is closed and is confident that this guarantee facility alongside swift implementation of the Transnet Recovery Plan will be sufficient to resolve Transnet’s challenges,” said Treasury.

Government and Transnet bosses are likely to insist that the move is not a state bailout, as it is not an equity injection.

However, Transnet has had no option, but to ask its sole shareholder for help, with its debt-burden ballooning to R130 billion and little access to further funding in the commercial markets.

Commenting on the Treasury’s decision, independent economist Dr Thabi Leoka said the move was expected, but called for strong executive leadership at Transnet.

“It is not surprising given the dire financial constraints Transnet finds itself in.”

“A further concern is whether Transnet has the right people to ensure that these funds are used effectively. Currently, Transnet is operating without key executives, which is a great risk,” she said.

source:Transnet gets R47bn Treasury ‘support package’ – Moneyweb