Transnet sets aside $1.5bn for deals to expand services

Transnet SOC Ltd. has set aside 20 billion rand ($1.5 billion) for acquisitions as the South African state-owned company seeks to expand services beyond its core business as a ports and rail operator and diversify geographically.

The business may look at new areas including freight forwarding and shipbroking to become more than a transportation provider and will consider buying assets such as liquid-bulk facilities and inland terminals, Chief Executive Officer Siyabonga Gama said in an interview on Monday. Discussions with some targets are at an advanced stage and deals could be announced by the end of the fiscal year in March, he said.

“We need to become much more acquisitive,” the CEO said. “We are already looking even further afield to places such as India in terms of where we could participate, and also in the Middle East. But in the main we want to look at the African continent itself.”

Transnet is looking at new services and regions as first-half earnings fell due to slowing economic growth in South Africa and after the company granted price reprieves to struggling customers in the steel industry. Gama is also seeking to boost the level of consumer and manufactured goods transported on Transnet’s rail lines and reduce a reliance on coal and iron ore.

As much as 25 percent of revenue could come from outside South Africa over the next five to six years, the CEO said.

Earnings Fall

Earnings before interest, taxes, depreciation and amortization declined 0.3 percent to 13.9 billion rand in the six months through September, Gama told reporters in Johannesburg. Revenue increased 1.2 percent to 32.6 billion rand.

A slowdown in South Africa’s economy to the weakest level since 2009 has forced some customers to defer investment plans, he said. First-half rail volumes fell 1 percent, led by iron ore and manganese. Coal volumes rose as the price of that commodity increased, while the container and automotive segment jumped 13 percent as the company continues efforts to shift consumer and other general goods from road transport to rail.

Transnet extended its capital-expenditure program a year ago to as much as 380 billion rand over 10 years, compared with an earlier plan of 336 billion rand over seven years, after mining customers deferred planned investments in response to lower commodities prices. The current seven-year spending plan is for 277.8 billion rand, Chief Financial Officer Gary Pita said.

Transnet is largely funded for the current year, and had held talks with lenders about lowering the trigger levels for certain covenants if Transnet’s credit rating is cut, which would be expected if South Africa is reduced to junk status later this year. Almost all lenders have agreed to the proposal, the CEO said. About 30.1 billion rand of Transnet’s 127 billion rand debt could have been affected if the company hadn’t renegotiated.

“We are not saying that we believe that there would be a downgrade, in fact quite the opposite,” Pita said about the potential for a sovereign ratings cut. “But what we are saying is that we would like to prepare for any eventuality.”