The possibility that Transnet could run out of funds within the next three months may increase pressure on government to step in with additional financial aid.
Moody’s Ratings has warned that the state-owned logistics company, Transnet, could run out of money in the next three months.
“Today’s rating action reflects our growing concern over Transnet’s unsustainable capital structure, its deteriorating liquidity position, lack of formal agreement so far on additional government support, and the slower-than-planned pace of operational improvements,” said Moody’s.
The ratings agency put the already struggling logistics company on review for a downgrade last week. This comes months after S&P Global put Transnet on credit watch.
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Transnet to run out of money
Moody’s provides data, intelligence, and analytical tools to help business and financial leaders make informed decisions. The warning that Transnet could run out of money within the next three months could intensify pressure on the government to initiate a financial rescue.
“In December 2023, the Government of South Africa provided Transnet with a R47 billion guarantee facility that allowed it to issue government-guaranteed debt. This facility has been fully exhausted and expired on 31 March 2025.
“While Transnet still has undrawn available loan commitments of around R7 billion and some cash as of the end of March 2025, we expect this amount of available liquidity sources will only be sufficient to reliably cover the company’s operating and investing needs as well as upcoming debt maturities for the next three months.”
Will the government bailout Transnet?
Moody’s believes Transnet needs further government support to refinance upcoming debt maturities and secure funds for its expanded capital expenditure programme.
But will the government bail out Transnet? The National Treasury has previously attributed poor service delivery to its decision to bail out cash-strapped state-owned enterprises (SOEs) with billions.
The ratings agency stated that the state-owned entity is subject to debt amortisation payments on a near-monthly basis during the 2025/2026 financial year, which ends in March 2026. The next substantial maturity is a R9.9 billion local bond due on 19 August 2025.
“We believe the government remains supportive of Transnet and will provide additional guarantees or other assistance to prevent default on its upcoming debt maturities. However, the lack of a formal announcement so far creates uncertainty and heightens default risk.”
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Sabotage of the recovery programme
Moody’s acknowledged that Transnet’s operational performance has improved under the recovery programme launched at the end of 2023. However, progress remains slower than planned, to some extent due to the continued high occurrence of theft, vandalism, and adverse weather conditions.
“As such, we believe the company continues to underperform the plan’s targets. As of March 2024, rail volumes had increased to 152 million tons per year, up from 150 million tons the previous year, but had achieved only around half of the targeted improvement of 4 million tons.
“As of September 2024, volumes reportedly increased by 3.2%, implying continued underperformance against a target of 170 million tons for the full year that ended March 2025.
“While revenue increased by around 12% during the year that ended March 2024 and a further 6% during the six months that ended September 2024, these improvements were primarily driven by higher tariffs rather than increased volumes.”
Debt burden remains high
Moody’s stated that Transnet’s debt burden remains excessively high, resulting in unsustainable interest payments.
“The company’s EBIT to interest coverage ratio remains at 0.6x for the twelve months that ended in September 2024, and we expect it to remain below 1.0x for at least the next two to three years.
“This means the company is unable to meet regular capex [capital expenditure] and interest payments from its earnings.”
The ratings agency emphasises that no funds have been raised to date, and timelines remain uncertain.
“The review will focus on the government’s willingness and ability to provide further support to Transnet, as well as the materiality and sufficiency of such support in bringing the company’s capital structure and liquidity position on a sustainable footing.”
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S&P places Transnet on ‘credit watch’
In December 2024, S&P placed the logistics company on credit watch, citing “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 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,” said S&P.
Can Transnet afford salary increases?
The struggling logistics company has offered at least 20 000 employees who are members of the South African Transport and Allied Workers’ Union (Satawu) salary increases. They agreed to the offer of 6% effective from 1 April 2025, 6% in 2026, and 5.5% in 2027.
However, the union representing most of the 46 000 employees at Transnet has rejected the offer, noting that it does not reflect the economic crisis the working class faces.
The United National Transport Union (Untu) is threatening to bring the logistics company to a standstill on Thursday if a revised offer is not received from the Commission for Conciliation, Mediation and Arbitration (CCMA) by the end of Monday.
If the strike goes ahead, more than half of the Transnet workforce will be absent, which could result in significant disruptions in the sector.
Bailouts lead to poor service delivery
The South African government’s ability to provide quality service delivery has deteriorated over time, with streets marred by potholes, sewage spillages, collapsing infrastructure, and roads resembling wasteland.
Last year, poor service delivery was attributed to the government’s decision to provide state-owned enterprises with billions in bailouts. Over the past nine financial years, SOEs have received R456.5 billion in taxpayer money in the form of bailouts. By the end of the current financial year, this amount is expected to increase to R520.6 billion.
The bulk of these bailouts went to Eskom.
The Standing Committee on Appropriations was told about the others, including South African Airways (SAA), the South African National Roads Agency (SANRAL), the South African Broadcasting Corporation (SABC), the Land Bank, the South African Special Risks Insurance Association (Sasria), Denel, the Post Bank, South African Post Office (Sapo), South African Express, the Development Bank of Southern Africa (DBSA), and the Airports Company South Africa.
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