S&P places Transnet on ‘credit watch’

Transnet has been placed on CreditWatch by S&P Global Ratings following the agency’s annual review of the state-owned company. Despite maintaining Transnet’s ‘BB-‘ issuer credit rating and affirming its South African national scale ratings at ‘zaAA-/zaA-1+’, the decision reflects mounting concerns over its financial outlook.

According to S&P, Transnet’s operational improvements are expected to be gradual, but the company’s cash flow is unlikely to rise sufficiently or quickly enough to sustain its current liquidity, leverage, and capital structure. Additionally, elevated capital expenditure requirements and debt servicing costs leave the company with limited room to manage operational underperformance.

The rating company also noted that Transnet may require additional government support to address these challenges.

ALSO READ: Transnet coal corridor performs miracles but that won’t be enough

“We believe the company will likely require incremental government support to transform its capital structure, fund capex and meet upcoming debt maturities.”

“The CreditWatch placement reflects the increased likelihood of a downgrade if the anticipated turnaround in Transnet’s business performance and cash flow generation does not materialise soon enough to control the current leverage levels and capital structure,” S&P noted.

In response, Transnet emphasised the steps it is taking to address these concerns through its Recovery Plan, which was approved by the board in October 2023. Group chief executive Michelle Phillips highlighted the plan’s importance in improving operational and financial performance.

ALSO READ: New Transnet CEO confident on meeting recovery plan targets

“The steps towards the desired financial recovery and operational excellence include improving the availability and reliability of rolling stock and rail network infrastructure and implementing operational excellence initiatives to improve productivity, reduce downtime, and enhance service delivery,” Phillips said.

Transnet further indicated that management will provide regular updates to S&P over the coming months, detailing progress on operational improvements, capital investment plans, and adjustments to its capital structure.

This article was republished from Moneyweb. Read the original here.