S&P Global Ratings forecast freight rail and ports operator Transnet will burn cash for the next three years, according to a report by BusinessLive on Tuesday.
As a result, the ratings agency downgraded Transnet, citing an unsustainable capital structure without state support. It warned the company will likely miss its target to move 250 million tonnes of freight by 2030.
Transnet received a R51bn guarantee in June from the South African government, said BusinessLive.
“Given the extent of network rehabilitation required due to maintenance backlogs, aged infrastructure and ongoing security incidents, we expect volume recovery to fall short of budgeted projections,” said Omega Collocott from S&P Global Ratings.
The South African government stepped in with guarantees after it became clear Transnet would run out of cash within three months. The R51bn package comprises R41bn for fiscal years 2026 and 2027, plus R10bn for liquidity management.
A portion has already gone towards settling a multi-year tariff dispute with Sasol, with Transnet agreeing to pay nearly R5bn in an out-of-court settlement.
S&P said Transnet faces negative free cash flows and elevated leverage, severely undermining its ability to service debt without government support. The agency expects the company’s free cash flow deficit will only begin to moderate in fiscal 2027.
The latest guarantee adds to R47bn received in December 2023, as the transport department prepares for R99.6bn in debt redemptions over five years. Transnet is grappling with a debt pile exceeding R130bn.
Transnet CEO Michelle Phillips said the company had made strides to improve operational and financial challenges, with government guarantees ensuring appropriate liquidity levels.
