Transnet secures US$1b loan from African Development Bank

African port operator Transnet has won a ZAR 18.85 billion (US$1 billion) corporate loan from the African Development Bank Group to support its recovery and growth plans.

Approved on Friday, July 12, 2024, the 25-year loan is fully guaranteed by the South African government, the bank said.

The funding will kickstart the first phase of Transnet’s ZAR 152.8 billion (US$8.1 billion) five-year capital investment plan, aimed at enhancing existing capacity and preparing for future expansion across key segments of the transport value chain.

“Transnet has faced operational challenges mainly in the critical rail and port businesses resulting from underinvestment in infrastructure and equipment, theft and vandalism, and external shocks such as floods and the effects of the COVID19 pandemic,” the bank added.

Launched in October 2023, Transnet’s recovery plan is focused on rehabilitating infrastructure and accelerating the relaunch of operations over the next 18 months. The plan prioritises restoring operational performance and freight volumes having experienced considerable declines in volumes amid ‘operations underperformance’.

The most important drop was marked in the rail operating division, with volumes declining 77mt (6.7% Compounded Annual Growth Rate or CAGR) from 2017/18 to 2022/23, according to the recovery plan.

Transnet reported that its financial position has weakened over time, with revenue decreasing from approximately R72.9 billion (US$ 4.02 billion) to R68.9 billion (US$ 3.8 billion) between FY2017/18 and FY2022/23. During the same period, operating expenses rose from around R40.4 billion to R45.9 billion.

Declining revenue and rising operating costs led to a reduction in operating profits, as evidenced by a drop in EBITDA from roughly R32.5 billion to R23 billion (a -6.64% CAGR). The challenge of improving profitability has prompted Transnet to increase its borrowing, which grew from about US$ 6.77 billion to US$ 7.15 billion over the period in question.

Over the 18 months, Transnet committed to delivering 154.4 mt of cargo via rail, with targeted growth measures expected to boost this forecast to 170 mt for FY23/24. Without these measures, the volume is projected to reach 141 mt. Additionally, the port operator plans to increase container volumes from 4 million TEU to 4.9 million TEU by FY24/25.

In addition to the corporate loan, the African Development Bank is considering two targeted grants for Transnet. One grant is US$750,000 from the Sustainable Energy Fund for Africa (SEFA) to enhance energy efficiency as part of Transnet’s net-zero plan. The second grant is US$1 million from the Infrastructure Project Preparation Facility (IPPF-NEPAD) for technical assistance to speed up railway reforms and address inefficiencies.

“Our partnership will enable Transnet to execute a comprehensive Recovery Plan (RP), addressing operational inefficiencies, particularly in rail and port sectors,” said Solomon Quaynor, African Development Bank’s Vice President for Private Sector, Infrastructure and Industrialisation.

“It is aligned with South Africa’s strategic ‘Roadmap for Freight Logistics System,’ and overseen by the National Logistics Crisis Committee, chaired at the Presidency level. This initiative signifies our commitment to enhancing national logistics capabilities and driving sustainable economic growth.”

Michelle Phillips, Group Chief Executive of Transnet said the loan will make “a significant contribution to Transnet’s capital investment plan to stabilise and improve the rail network and to contribute to the broader South African economy.”

He added that the accompanying grant funding to the loan will assist Transnet with to its energy efficiency efforts and with Infrastructure Project Preparation initiatives.