International credit rating agency Standard & Poor’s (S&P’s) has reaffirmed Transnet’s investment grade credit rating based on the Company’s stand alone credit profile, confirming the Company’s attractiveness for investors and the success of its efforts to strengthen the balance sheet.
The agency reaffirmed Transnet’s local currency at ‘A-’ and the foreign currency at ‘BBB+’, with a stable outlook on both.
This affirmation will enable Transnet to continue raising funds in the debt capital markets on the strength of its balance sheet and crucially, without guarantees from the government.
S&P said the ratings were informed by the Group’s stand alone credit profile, which reflects its strong business risk profile, continued operational and financial improvements and increasing profitability.
The following funding facilities bear testimony to the Company’s investment grade credit rating:
Transnet successfully concluded a loan of US $400 million, an “A” loan from the African Development Bank, with the expected drawdown during the current financial year. A “B” loan of up to US $410 million has also been granted by a syndication of international institutions.
The loan, which forms part of the Company’s fundraising efforts aimed at beefing up its capital investment programme, will be committed exclusively to financing Transnet Freight Rail’s capitalized maintenance programme, a vital aspect of Transnet’s strategy of creating the required capacity ahead of demand.
In addition, the Group has also increased the size of the Domestic Medium Term Note from R30 billion to R55 billion, which was listed on the JSE on the 26th of October 2011.
Maintaining an investment grade credit rating forms the foundation of the Company’s borrowing strategy that will enable the successful execution of the five-year R110 billion capital investment programme aimed at increasing capacity and efficiency.
Last week, Transnet announced an impressive set of financial results for the six months to 30 September 2011 as ongoing efficiency and productivity improvement and capital expenditure boosted growth in volumes.
Revenue for the period increased by an impressive 20,3% to R22,4 billion compared to R18,7 billion during the corresponding period last year, thanks to a 7,1% weighted average growth in volumes emanating from strong growth in export iron-ore volumes and containers handled at the ports.
Earnings before interest, taxation, depreciation and amortisation (EBITDA) – Transnet’s key measure of profitability – rose by 27,0% to R9,4 billion (2010: R7,4 billion) resulting in an EBITDA margin of 42,0% (2010: 39,8%).
The gearing ratio is 42,6% compared to 41,1% as at 31 March 2011, but remains comfortably below our target range of 50%. This reflects the significant capacity available to fund future capital expenditure. This ratio is not expected to exceed the Company’s target over the medium term.