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Transnet’s liquidity profile concerns the auditor-general

Transnet’s liquidity profile concerns the auditor-general

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The auditor-general’s office has expressed concern at Transnet’s inability to generate sufficient cash flow from its operations to make debt payments, its liquidity, resulting in its raising loans to make payments, a sentiment expressed by Moody’s Ratings Agency earlier this year.

Briefing Parliament’s standing committee on public accounts (Scopa) yesterday, Modimela Singo, the acting business executive at the auditor-general (AG), said yesterday that Transnet’s financial report, in which it recently declared R5 billion profit from a fair value adjustment of its R9.8bn portfolio investments, had been done late.

“The issue is that Transnet is not able to generate sufficient cash flow from its operations to settle loan repayments. It is not sustainable that Transnet has to raise loans to make repayments, even though it does have a R36bn domestic long-term note and a $5bn global note. But there is concern about its liquidity profile,” she said.

The AG said while Transnet was able to raise funds without much help from the government, the parastatal’s liquidity and its financial health required close monitoring and attention.

Ratings agency Moody’s Investors Service last month lifted the review for downgrade it had placed on Transnet in June on concerns over the company’s exposure to weak liquidity management and high refinancing risk.

Moody’s said Transnet’s ratings were confirmed because the company’s liquidity had improved after it raised new financing in the form of a $685 million (R11.8bn) five-year amortising term loan and a bridge to bond facility that allowed it to repay its $1bn international bond maturity on July 26.

However, despite lifting the review, Moody’s changed Transnet’s outlook from ratings under review to negative, saying that an upgrade was unlikely at this time.

The audit report to Parliament indicated issues around Transnet reaching its performance objectives, which was at 37% of its own targets, procurement and contract management processes, consequence management of officials suspected of corruption, compliance and expenditure management.

Transnet has a three-year exemption from having to declare its irregular expenditure as well as fruitless and wasteful expenditure, which stems from its request to deal intensely with state capture anomalies that cost billions and twisted its management systems.

“Had it not been for the exemptions, Transnet would have attained a qualified audit opinion,” she said.

Transnet's capacity has largely been impaired by a sour 1 064 locomotives rolling stock procurement contract entered into in 2014, which had to be put on hold without full delivery of the trains or spare parts at a cost of R54bn on a tender awarded to a consortium led by McKinsey as well as Regiments and Trillian, both Gupta-linked entities.

Transnet had initiated legal action against former executives, financial facilitators and suppliers for the deal.

Former CEO Brian Molefe is facing court action alongside former chief financial officer Anoj Singh and Regiments Capital directors Niven Pillay and Litha Nyhonyha; former CEO Siyabonga Gama, former Transnet chief financial officer Garry Pita, and former treasurer Phetolo Ramosebudi, Regiments shareholder Eric Wood, Trillian Asset Management director Daniel Roy and Kuben Moodley.

Meanwhile, the AG expressed worse sentiments about the Passenger Rail Agency of South Africa (Prasa), which too was awash with mismanagement, some dating back to the state capture years.

The AG’s office said the utility was sitting with a stock pile of R9.8bn worth of locomotives, which were not functional because of procurement issues. It pointed out similar issues of management to Transnet, with Prasa worse off because of the need to rebuild large portions of its rail infrastructure.


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