Transnet Plans to Sell Rand Bond Overseas to Finance Projects

Transnet SOC Ltd., South Africa’s state-owned ports and rail operator, said it plans to issue a rand bond in international markets this year to finance its 308 billion rand ($30.93 billion) infrastructure program.

“From Transnet’s perspective, the fact that the rand is sitting at 10 to the dollar means we get more rand for every dollar we raise,” Transnet Chief Financial Officer Anoj Singh said in an interview in Johannesburg today. “And if you look at it from an investor perspective, they have an ability to take a currency play.”

The bond will be the equivalent of $500 million to $1 billion as the company aims to triple the size of its global medium-term note program to $6 billion. The maturity of the bond will be from five years to 10 years. The rand bond will go toward Transnet’s total funding requirements of 87.7 billion rand for the years through fiscal 2019.

The rand has declined 15 percent this year, making it the worst performer of 16 major currencies tracked by Bloomberg. The currency strengthened for the first time in three days today, advancing 1.5 percent to 9.9553 per dollar by 3:39 p.m. in Johannesburg. Yields on the 10.5 percent government bonds maturing in December 2026 fell for a third day, declining 27 basis points to 7.878 percent.

Rail Infrastructure

“We’ve got benchmarks already but they are not in rand, they are in U.S. dollars,” Singh said. “The fact that we’re issuing a rand bond for the first time in an international market, yes it will be our benchmark.”

Transnet is spending 308 billion rand over a seven year period to improve South Africa’s ports and rail infrastructure, with two-thirds being allocated to rail. It plans to fund the programme partly with cash raised on domestic and international markets.

Profit for the 12 months through March rose to 4.34 billion rand, compared with 4.12 billion rand a year earlier, Chief Executive Officer Brian Molefe told reporters today. Revenue advanced 9.4 percent to 50.2 billion rand.

Standard and Poor’s reaffirmed Transnet’s rating at BBB-while Moody’s Investors Service Inc. rates the company as A3-. Transnet’s net finance costs rose 36 percent to 5.14 billion rand. The increase isn’t worrying, according to Molefe, as the company’s gearing, a measure of indebtedness, will peak at 48 percent in 2015 and 2016 from a current 45 percent.

“We think that the financial markets will still be accessible,” he said. “We will move from market to market to lower debt service costs.”

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