Transnet Slows Spending Program in Line With Commodity Slump

  • State company targets $27.6 billion investment over 10 years
  • First-half earnings gain 9% on iron ore, container volumes

Transnet SOC Ltd. extended its capital-expenditure program to as much as 380 billion rand ($27.5 billion) over the next decade as the company considers delaying some projects amid slumping commodity markets.

The South African state-owned ports and rail operator will spend between 340 billion rand and 380 billion rand over the next 10 years, compared with a previous plan to invest 337 billion rand over seven years, Acting Chief Executive Officer Siyabonga Gama said in a presentation in Johannesburg on Thursday. While the company is not cutting spending plans, investments including an increase in iron-ore rail capacity may be delayed, he said.

Transnet was in the fourth year of the seven-year program to expand and upgrade rail and port capacity in South Africa, the world’s biggest manganese producer and the continent’s largest source of iron ore and coal. The Johannesburg-based company is switching to a 10-year program as it seeks to match new capacity with expected demand from its customers.

“The horizon has shifted,” Gama said. “Some of those investments that were going to be made inside that period may be deferred, but when you defer something it does not mean you have stopped -- it means you continue but the period in which you do it might fall outside.”

Commodities Business

South Africa’s economy declined in the second quarter as weaker commodity prices, unemployment of 25 percent and power cuts curbed growth. Iron-ore prices have fallen 30 percent this year and are 74 percent below a 2011 high of $191.70 a ton amid rising low-cost output and weaker growth in China, the biggest buyer. The price of coal at Richards Bay on South Africa’s Indian Ocean coast has declined 19 percent.

“At the end of the day we are a commodities business," Acting Chief Financial Officer Garry Pita told reporters. “We’ve gone and looked at our entire capital portfolio and had discussions with our customers, to ensure we still provide the capacity ahead of demand, but time it correctly."

Transnet still views its spending plan as a rolling program, Gama said, as the company seeks to boost economic growth and ensure South Africa’s transportation network is competitive with other countries, he said.

Transnet is in talks with South African banks about fresh funding and could announce a syndicated loan deal next month, Pita said in an interview. The company also expects to sell bonds and will seek to tap export-credit agencies and development finance institutions to help pay for its spending plans, he told reporters.

“Transnet continues to fund itself," Pita said. “We will continue to ensure that we don’t rely on the fiscus or the taxpayer."

Earnings Rise

Transnet’s earnings before interest, taxes, depreciation and amortization rose 9 percent to 13.9 billion rand ($1 billion) in the six months through September, company said. Revenue gained 6.4 percent to 32.2 billion rand.

Iron-ore export volumes increased 7.5 percent to 30 million tons, while container and automotive rail movements were also higher. Total rail volumes declined 1.8 percent, weighed by a 5 percent drop in coal.

Gama, the head of Transnet’s freight rail unit, was named acting CEO of the company in April, after Brian Molefe was seconded to head Eskom Holdings SOC Ltd., South Africa’s state power company. Molefe’s role at the utility was made permanent in September.

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