Transnet Moving to Fixed-Rate Debt as Credit Downgrade Looms

Transnet Holdings SOC Ltd., South Africa’s state-owned transport company, is cutting its proportion of floating-rate debt to hedge against a rise in borrowing costs in the event of a downgrade of the country’s credit rating to junk, Chief Executive Officer Siyabonga Gama said.

The possibility of South Africa’s national sovereign debt rating being cut to junk by S&P Global Ratings next month is “a big concern for the country, it’s going to affect everybody,” Gama said in an interview on the sidelines of the World Economic Forum conference in Kigali, Rwanda, on Wednesday. “We have spent the last couple of months trying to buttress our balance sheet against that kind of eventuality.”

Transnet has increased its ratio of fixed-rate to floating-rate debt to about 80-20, from 65-35, “in the last few months,” Gama said. The company has about 70.7 billion rand ($4.7 billion) of bonds, of which 5.8 billion rand is floating-rate debt, according to data compiled by Bloomberg. It also has 73.3 billion rand of other loans.

S&P is reviewing the debt rating of Africa’s most-industrialized country on June 3. It rates South Africa’s debt BBB-, the lowest investment-grade level, with a negative outlook. A cut to junk may raise borrowing costs for state-owned companies, which are benchmarked against government debt.

Transnet, South Africa’s third-biggest borrower after the government and the state-owned electricity company, Eskom Holdings SOC Ltd., has studied covenants attached to its bonds and is “comfortable” none of the loans would be recalled in the event of a downgrade, Gama said.

Moody’s Investors Service affirmed South Africa’s credit rating at Baa2, two levels above junk, on May 6 and kept its outlook on the rating on negative.

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