The head of State-owned freight logistics utility Transnet – which recently unveiled a R300-billion, seven-year investment programme – is expecting the group’s 2015/16 financial year to prove the most difficult to navigate, as in that year the group’s capital expenditure (capex) peaks, along with its funding requirements and loan redemption commitments.

Therefore, CEO Brian Molefe describes the year as the most ‘critical’ period in the life of Transnet’s market demand strategy, or MDS, which involves major investments into railways (R201-billion), harbour infrastructure (R47-billion), port terminals (R33-billion), pipelines (R11-billion) and rail engineering works (R4-billion).

During 2015/16, capex will peak at R48-billion, while there will also be a need to redeem R7.1-billion in loans. In addition, the funding gap will peak at above R20-billion.

‘Year four and five [of the MDS] is going to be stressful,’ Molefe warns, adding that he is hoping for an above-budget performance in the years leading up to 2015/16 to ‘relieve the pressure’.

Around 70% of the capex programme will be funded from operating cashflows. But between R90-billion and R100-billion will have to be raised externally.

Currently, the group anticipates raising a good portion domestically through the issuance of commercial paper, bonds and bank loans. However, it will also borrow internationally from the development finance institutions; raise capital through its global medium-term note programme, including through a possible second issuance; and from export credit agencies. Some of the capital could also be secured through the group private sector participation initiatives.

Transnet will also consider alternatives should problems arise in any of its main funding pools. It will also consider alternative bond markets, such as the Yen market and the emerging Sukuk market.

‘But it is very important to emphasise that we are not desperate for capital,’ Molefe says, adding that the group will pursue deals that help it to lower its average cost of debt.

‘The availability of capital should not be a huge risk to this strategy. In fact, the R100-billion of the R300-billion we require could be increased to R150-billion very easily,’ he adds, while acknowledging that it will need to keep the group’s gearing below 50%.

Reported by Engineering News