Artwell Dlamini
1 December 2008
Johannesburg — LEADERSHIP change and lack of market liquidity appear unlikely to hobble Transnet's ability to raise funds for its R80bn investment plan, say analysts.
The yet-to-be-named CE who will take charge after Maria Ramos steps down in February next year faces the prospects of raising funds in the middle of a financial crisis.
Andrew Canter, chief investment officer for Futuregrowth Asset Management, said last week the transport parastatal would be able to raise capital even though it had to pay higher interest rates or yields to entice investors.
Canter said this risk pricing applied to nongovernment borrowers.
Keneilwe Moloko, an analyst at Coronation, agreed and said Transnet would be able to raise funds in the future, although this would come at a price due to market conditions.
"It's a buyers' market," she said. Bond investors demand higher yields to compensate for higher risk and this leads to wide interest-rate spreads -- the difference between yields on bonds issued by entities such as Transnet and the corresponding yields on government bonds.
Canter said government bonds were considered "risk-free" as the danger of defaulting on payment was remote.
Investors charged issuers such as Transnet additional interest because all businesses carried some risk, said Canter, who expected liquidity to improve in the second half of next year.
Three weeks ago, Transnet raised R800m instead of R1bn as was planned. The spread was at 200 basis points above a government bond with the same maturity.
Extra interest payments, resulting from wider spread, add to the costs of doing business for Transnet.
This may prompt the company to pass on these costs to its customers.
Releasing interim results recently, Ramos said raising funding for the capital expenditure programme had "become much more difficult and ... interest rate spreads have widened".
Transnet has a long way to go with its capital-raising exercise.
It intends raising about R36,5bn from the capital market in the medium term as part of the five-year R80bn capital expenditure plan, which seeks to upgrade and expand rail and port facilities as well as pipeline networks.
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