Transnet in funding talks with AfDB and JBIC, as it revises plans in light of turmoil

State logistics group Transnet was having to continuously review and revise its funding plans for its R80-billion, five-year capital expenditure (capex) programme, given the prospects of softening revenue growth and the difficulties associated with raising fresh debt locally and globally.

But acting CEO Chris Wells, who is also the group’s CFO, indicated on Thursday that the utility was likely to have to need to lean more heavily on development finance institution (DFI) and export credit agency sources, given current liquidity stresses in the capital markets.

It was currently in funding discussions with the African Development Bank (AfDB) as well as with Japan Bank for International Cooperation, or JBIC, and others, where it was assessing the prospects of raising “cost-effective” foreign finance.

The utility was not alone in seeking greater DFI finance, with South African power utility Eskom having already signed a $500-million, 20-year loan with the AfDB, and was seeking a multibillion-rand package from the World Bank.

Transnet had also put in place an umbrella facility with export credit agencies in the key markets from which Transnet was likely to source the imported components for its various capex programmes, which cut across its rail, ports and pipelines businesses.

To promote exports, these agencies generally provided guarantees to a funding institutions, which lowered the overall risk profile and enabled the cost of finance to be reduced.

“That will be an important source of funding for the imported components of our capital programmes, but also for the large imported materials and components that we have to buy for our replacement programmes,” Wells outlined.

The group was also in the process of establishing a global medium-term note programme, which would position it to issue bonds in the US and Europe, “when the opportunity is right”.

Prior to the credit crisis, Transnet indicated that it would close most of an estimated R37-billion funding gap through raising debt on the local and international capital markets. The balance of the capex would have been funded off its own balance sheet, and would have been supported by strongly growing revenues.

Some 51%, or R21-billion, was meant to have been raised on the domestic markets, through a combination of bonds and loans, with the Transnet having already established its domestic medium-term note programme.

About 26% of the funding was to be raised offshore and some 9%, or R3,5-billion, through export credit agencies.

The group's three-year timetable indicated that it would have to raise R13,7-billion in the 2008/9 financial year, R13,8-billion in 2010, and around R9-billion in 2011.

However, Wells said that, while he remained confident in the ability of the group to fund its project pipeline, the funding plan and options were having to be updated on an ongoing basis.

“The plan is dynamic,” Wells stressed, adding that it was seeking to be agile and have contingency plans in place for any scenario that might arise.

“What we have instituted, is a totally different way of looking at our business, which we call dynamic planning.

“We have identified the key cash generators in the business, which we review weekly to ensure that our projections are in line with budget and to adjust to the changes in trend,” he said.