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Transnet capex programme could impact on cash flows – Moody's

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Cape Town - South Africa's subdued economic environment and low commodity prices will reduce Transnet's ability to generate enough cash flows over the near term to offset the increased debt that is needed to fund its capital expenditure programme, said Moody’s Investor Services on Monday.

Transnet, which currently holds a Baa2 negative rating from Moody’s, has recently adjusted its budget and extended its capital investment programme from seven to 10 years.

READ: SA's biggest debt manager halts loans to state firms

“Compared to last year’s budget, Transnet has cut its planned capex for the next three years from R156bn to R96bn with a 50% reduction to R23bn for the financial year ending 31 March 2017,” said Dion Bate, a senior analyst at Moody’s.

He believes the diminished funding needs will help to reduce the pressures on Transnet's financial position.

Moody's notes, however, that the size of Transnet's capex programme of R390.7bn over the next 10 years could lead to delayed cash flows and a weaker credit position over the short term.

In response to asset manager Futuregrowth’s announcement that it was suspending loans to some of South Africa’s state-owned enterprises, Transnet hit back in a statement saying it raises funding through domestic and international debt capital markets, on the strength of its financial position and that it has operated with no government guarantees since 2005.

“Transnet has already funded its full borrowing requirement for the 16/17 financial year and has a healthy liquidity position, with R22 billion available at present.”

The state-owned company said it viewed itself as a “credible and reliable borrower” as evidenced by its stand-alone credit profile and investment grade credit rating.

“We are also committed to maintaining the highest standards of good corporate governance and adhere strictly to internal policies and procedures.”

Earlier in September, Moody's announced that it is placing Eskom, Sanral, DBSA, IDC and the Land Bank on review for downgrades. It cited funding and liquidity challenges and governance concerns at South Africa’s state-owned enterprises in general as reasons for its view.

Eskom said in response that it would engage with Moody’s to resolve concerns around its financial position.

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