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Johannesburg - Transnet has set aside R20bn for acquisitions as the state-owned company seeks to expand services beyond its core business as a ports and rail operator and diversify geographically. It has also decided to cut ties with Gupta-linked Trillian, according to its chief executive.
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, CEO 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% 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% to R13.9bn in the six months through September, Gama told reporters in Johannesburg. Revenue increased 1.2% to R32.6bn.
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%, led by iron ore and manganese. Coal volumes rose as the price of that commodity increased, while the container and automotive segment jumped 13% as the company continues efforts to shift consumer and other general goods from road transport to rail.
Transnet extended its capital-expenditure programme a year ago to as much as R380bn over 10 years, compared with an earlier plan of R336bn over seven years, after mining customers deferred planned investments in response to lower commodities prices. The current seven-year spending plan is for R277.8bn, 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 R30.1bn of Transnet’s R127bn 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.”
Transnet cuts ties with Trillian
Meanwhile, Business Day reported on Tuesday that Gama has decided to terminate Transnet's relationship with Trillian and Regiments Capital.
This after former public protector Thuli Madonsela said in her “State of Capture” report that she decided to investigate contracts awarded by Transnet to Regiments Capital and Trillian.
Gupta associate Salim Essa has 60% ownership of Trillian. Madonsela found that he “also has links to the Transnet board through having once been a business partner of board chairwoman Linda Mabaso's son Malcolm - an adviser to Mineral Resources Minister Mosebenzi Zwane”.
“The investigation into Transnet will however form part of the next phase of the investigation,” she indicated in the report.
Gama said Transnet was satisfied it got value for money from Trillian and Regiments Capital.
"As Transnet we have resolved that a continued relationship either with Trillian or Regiments is no longer in our interests," he told Business Day.
Trillian chairperson Tokyo Sexwale on Friday announced the launch of an investigation into Trillian over its said pre-knowledge of the firing of former finance minister Nhlanhla Nene.
FULL STORY: Sexwale launches probe into Trillian Capital over Nenegate
