FIFI PETERS: Transnet had a great assertion to problem earlier, I feel, some excellent news for the state-owned enterprise. They have managed to get a credit score lifeline from international traders, and the cash that they can entry will basically assist them pay for debt, in addition to fund the all-important infrastructure tasks that we have to get this financial system actually rising once more and allow extra jobs to be created.
Read: Transnet secures R25.5bn credit score facility, with Deutsche Bank as lead bookrunner
But for extra on Transnet and this $1.5 billion facility – which interprets to round R25.5 billion – that they have been in a position to get from international markets I’m joined by Lindani Vezi, the funding analyst for listed credit score at Futuregrowth.
Lindani, is that this a optimistic for Transnet? I see that they also have a 12 months’s grace earlier than they’ve to begin making repayments on the cash that they ultimately use. Do you suppose that this can be a good story, and a mirrored image that Transnet is in good credit score standing, no less than?
LINDANI VEZI: Good night Fifi, and good night to your listeners. Most positively. This is unquestionably a credit score optimistic. I feel Transnet’s capacity to boost R1.5 billion within the present market signifies that there’s nonetheless credit score [available] for some of our SOEs. And additionally the 12-month capital grace interval will permit Transnet to construct up money assets as a way to begin servicing this facility over the [four-year] interval.
FIFI PETERS: Do you understand something extra in regards to the loan, issues just like the rate of interest at which the loan was granted?
LINDANI VEZI: This was a bilateral settlement. Therefore the market just isn’t conscious of the pricing of this loan settlement.
FIFI PETERS: We are in a time the place rates of interest are rising, and I’m simply questioning if they’d be a lot decrease within the international markets, provided that their rates of interest are so much decrease than [ours]. But [I also wonder] whether or not this presents any reimbursement danger for Transnet, given the unsure instances that we’re all dwelling in proper now.
LINDANI VEZI: I feel the principle cause why Transnet began to faucet into the international debt capital market was to deal with or elevate US greenback funding, as a result of on the finish of July, on the finish of this month, they’ve a $1 billion international bond that’s maturing; so this funding is primarily raised to match the upcoming maturity. And in phrases of rates of interest, they’ll in all probability obtain significantly better rates of interest within the international capital market in relation to what they’d have attracted within the native capital market.
FIFI PETERS: All proper. So it appears like … you’re optimistic and this can be a good improvement for Transnet, nothing for us to be anxious about as taxpayers right here in South Africa?
LINDANI VEZI: Definitely nothing to fret about in the mean time. I feel it’ll additionally tackle some of the vital points that we’ve seen not too long ago, equivalent to capability constraints on the freight rail division and Transnet has truly indicated that they are going to be issuing tenders to purchase extra locomotives as a way to repair or exchange the missing-capacity constraints.
FIFI PETERS: So the explanation for going out this time – that is the primary time in a really very long time that they’ve gone out to the international market (nearly a decade) – was to get some help to, primary, assist refinance the debt, as you’ve stated, and in addition to construct some tasks. Do you understand, or are you able to counsel which ought to have the upper precedence proper now? Should or not it’s addressing some of the historic debt or ought to or not it’s investing for the longer term and placing extra money in infrastructure spending, in your view?
LINDANI VEZI: In my view that is truly a mix of the 2 going ahead. What occurred at current is that there was an imminent debt maturity of R1 billion that needed to be refinanced. I feel each native and international traders within the bond market have been a bit cautious with buying and selling or investing in Transnet, primarily resulting from this huge maturity. And even Moody’s not too long ago issued a discover indicating that they’d contemplate downgrading Transnet’s credit standing on the again of the approaching maturity. So now that the maturity has been addressed, I feel Transnet is in a significantly better place to deal with its extension plans.
FIFI PETERS: So you’re saying that they’ve doubtlessly eliminated the chance of a Moody’s downgrade now after this facility?
LINDANI VEZI: Most positively.
They’ll in all probability keep away from an extra downgrade now that the refinance has been addressed.
FIFI PETERS: Can you inform us how the bonds regionally reacted to this, and whether or not you suppose that this might ultimately encourage much more native participation from traders in Transnet?
LINDANI VEZI: At current we haven’t seen a lot motion within the Transnet house. However, the final market motion has been that there’s been compression out there. So I truly anticipate that there can be an extra compression house, compression on Transnet additionally, over the approaching weeks.
FIFI PETERS: But do you suppose that this cash is sufficient to tackle all of the issues that they should, or do you suppose that we may see Transnet going again to the international market very quickly if this present funding doesn’t solely plug the hole that they want?
LINDANI VEZI: I feel likely they are going to be coming again to the market to boost extra funding. Transnet is definitely one of these SOEs (state-owned enterprises) that’s [rather] massive for our native capital market. So they should entry each native and international capital markets so as to have the ability to adequately fund the enterprise.
FIFI PETERS: And would that be an issue in the event that they went out once more and received overseas cash with the rand so risky proper now, and rates of interest and all of that going up?
LINDANI VEZI: No, by no means. I feel there are enough actual mitigating components at Transnet and doubtless these shall be hedged out. I feel the $1 billion that matures now had cross-currency hedges in place to deal with the foreign money danger.
FIFI PETERS: All proper, Lindani, thanks a lot for these insights. It’s not usually that we speak about difficult issues like bonds and credit score, however thanks for simplifying the matter for us. Lindani Vezi is an funding analyst for listed credit score at Futuregrowth.
