S&P Places Transnet on ‘Credit Watch’ Status
S&P Global Ratings has placed Transnet on CreditWatch after the agency’s annual review of the state-owned enterprise. Although it has retained Transnet’s ‘BB-‘ issuer credit rating and reaffirmed its national scale ratings in South Africa at ‘zaAA-/zaA-1+’, the decision highlights growing concerns regarding its financial outlook.
S&P noted that while improvements in Transnet’s operations are anticipated to be slow, the company’s cash flow is not expected to increase quickly or significantly enough to support its existing liquidity, leverage, and capital structure. Furthermore, high capital expenditure needs combined with debt servicing pressures leave the company constrained in dealing with operational shortfalls.
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The ratings agency also pointed out that Transnet may need more assistance from the government to overcome these difficulties.
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“We believe the company will likely require incremental government support to transform its capital structure, fund capex and meet upcoming debt maturities.”
“The placement on CreditWatch indicates a heightened probability of a downgrade if the expected improvement in Transnet’s business performance and cash flow generation does not occur soon enough to manage existing leverage levels and capital structure,” S&P commented.
In response, Transnet underscored the initiatives it is implementing to tackle these issues via its Recovery Plan, which was ratified by the board in October 2023. Group Chief Executive Michelle Phillips emphasized the plan’s crucial role in enhancing operational and financial performance.
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“The actions towards achieving the desired financial recovery and operational excellence involve enhancing the availability and reliability of rolling stock and rail network infrastructure, as well as implementing operational excellence strategies to boost productivity, minimize downtime, and improve service delivery,” Phillips stated.
Transnet also indicated that management will regularly update S&P in the upcoming months regarding advances on operational enhancements, capital investment strategies, and modifications to its capital structure.
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