The South African government has approved $5.3 billion in guarantees to continue supporting the state-owned rail and port company Transnet, Bloomberg reported this Monday, July 28.
According to the report, the allocation includes $2.7 billion to ensure that all of the company’s debt repayments are covered over the next five years, the Department of Transport said in a statement released on Sunday. The remaining $2.5 billion is intended to mitigate risks associated with potential downgrades of Transnet’s credit ratings.
The company requested funding through a budget mechanism prioritizing large-scale infrastructure projects necessary to boost economic growth, with the money to be used to finance upgrades and equipment orders. After years of underinvestment and state corruption, deliveries on some South African rail lines have fallen to their lowest level in decades, and its ports rank among the worst in the world.
These funds, added to a $2.8 billion credit line approved in May, are meant to help the indebted company become profitable.
“The government will continue to work with Transnet to ensure operational and financial improvements in the company and to accelerate reforms in the logistics sector, including private sector participation,” the department said. Transnet depends entirely on government support to service its debt, S&P Global ratings agency stated in a July 10 report when it downgraded the company’s senior unsecured debt rating. The agency warned of a “negative scenario” if government support weakened.
Similarly, measures that would improve the rating will take time, making a favorable review unlikely in the next 12 months, according to S&P.
Source: Diário Económico
