Paris, June 10, 2021 -- Moody's Investors Service ("Moody's") has today
affirmed the Ba2 long term corporate family rating (CFR) and the Aa2.za
national scale senior unsecured MTN program (Medium-Term Note)
rating of Transnet SOC Ltd. (Transnet). Transnet's
baseline credit assessment (BCA), a measure of standalone credit
quality prior to any assessment of potential extraordinary government
support, has been lowered to ba3 from ba2. The outlook remains
negative.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The lowering of Transnet's BCA to ba3 from ba2 reflects Moody's view that
Transnet's liquidity profile has weakened following delays in refinancing.
Bond maturities of ZAR6 billion that came due in May 2021 were met from
existing liquidity sources, including cash and drawings under the
company's short-term liquidity facilities, rather than
through raising of new long-term debt. This reduces the
company's available liquidity sources and increases refinancing
risk ahead of a USD1 billion international bond maturity (which was fully
cross-currency hedged at the time of issuance) due in July 2022.
For the fiscal year ending March 2022, Transnet has a total of ZAR14.6
billion of debt maturities. After redemption of the ZAR6 billion
bond maturities in May, c. ZAR8 billion remain due from June
2021 until March 2022. In addition, we understand the company
has drawn a portion of its ZAR13.3 billion short-term liquidity
facilities, which Moody's considers due over the short-term,
as lenders can request repayment at any point upon 360 days' notice,
even though lenders have in the past rolled over facilities. Including
the bond maturity due in July 2022, Moody's estimates the
company has c. ZAR25 billion of debt maturing over the next 14
months until the end of July 2022, the majority of which it will
not be able to meet from free cash flow. Transnet therefore significantly
relies upon continued access to the bond and loan markets for regular
roll overs and new issuances. The maturity profile remains concentrated
in the following years as well, with a total of c. ZAR40
billion due between August 2022 and March 2026.
Transnet is actively working on a funding plan and Moody's believe
the company will be able to secure the required refinancing in time to
meet all obligations due until July 2022. The company has historically
had a good track record in refinancing upcoming maturities through diversified
sources of funding, benefits from South Africa's deep financial
market and maintains good relationships with its bank lenders.
However, delays in refinancing as experienced for the May 2021 maturities
illustrate the vulnerability of Transnet's liquidity. Delays can
be caused by event risks that are out of the company's control and
could make accessing new financing temporarily more difficult.
The operating environment in South Africa remains challenging given ongoing
coronavirus related uncertainty. Moody's expect Transnet's
revenue, EBITDA and cash flows to be significantly reduced for the
fiscal year ending March 2021, but to recover over the following
years to pre-Covid levels as the company is already benefitting
from an increased commodity price environment and will see general freight
volumes normalize to pre-Covid levels as part of the macro-economic
recovery in South Africa. Moody's expects GDP to grow by
4.0% this year, after a 7.0% decline
in 2020.
A significant portion of the company's bank loans are subject to
an interest coverage maintenance covenant. Moody's expects
the company to be in breach of the covenant for the March 2021 test date,
but anticipates that lenders will provide waivers if required given the
unprecedented lockdown conditions caused by the coronavirus pandemic.
The decision to affirm Transnet's Ba2 CFR reflects the company's solid
business profile with ownership of long-term infrastructure assets
and a monopoly position in South Africa that provides a degree of cash
flow visibility.
Transnet falls under Moody's Government-Related Issuers Methodology
given its 100% government ownership and importance to the South
African economy. The strong link between Transnet and the Government
of South Africa (Ba2 negative) is reflected by Moody's assumptions of
'Very High' default dependence with the Government of South Africa and
'Strong' extraordinary support from the government, which supports
a one-notch uplift from the BCA.
Transnet's Ba2 CFR is supported by its (1) monopoly on the South African
railway infrastructure and freight services; (2) ownership of South
Africa's eight seaports and operation of a large part of South Africa's
stevedoring services; (3) operation of strategically important hydrocarbon
pipelines; and (4) good profitability, as reflected by its
adjusted EBITDA margin that Moody's expects to remain in excess
of 30% even during the March 2021 financial year that was severely
impacted by the pandemic.
At the same time, the ratings also reflect (1) Transnet's weak free
cash flow generation given its ongoing capital spending requirements;
(2) its high financial debt levels; (3) significant debt maturities
over the next several years which requires strong access to debt markets
in order to refinance; and (4) regulatory uncertainty on tariff structures.
OUTLOOK
The negative outlook is aligned with the negative outlook on the sovereign
rating. The negative outlook also reflects growing refinancing
risk and pressure on liquidity as a $1bn international bond maturity
in July 2022 draws closer.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Transnet's rating is constrained by the government of South Africa's
rating. Given the negative outlook, an upgrade is unlikely
at this time. Subject to an upgrade of the sovereign bond rating
of South Africa, Moody's would consider an upgrade of Transnet's
rating only if the BCA was raised. Moody's would consider
raising Transnet's BCA if the company's liquidity profile
improved and if Moody's adjusted debt/ EBITDA reduced below 4.0x
and EBIT/ interest expense exceeded 2x, all on a sustained basis.
Transnet's BCA is likely to face downward pressure if the company's
liquidity position continues to deteriorate, which could be the
result of delays in raising new financing well ahead of the $1
billion international bond maturity in July 2022 or from delays in repaying
short term facilities used to bridge the repayment of maturities that
came due in May 2021. The BCA would also be under pressure if consolidated
FFO/debt trends below 10% while EBIT/interest expense remains below
1.25x on a sustained basis. A lowering of the BCA would
lead to a downgrade of Transnet's ratings. A downgrade of
South Africa's government bond rating would also lead to a downgrade of
Transnet's ratings given our assessment of strong credit linkages
between the two.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: Transnet SOC Ltd.
....LT Corporate Family Rating, Affirmed
Ba2
....Probability of Default Rating, Affirmed
Ba2-PD
....ST Issuer Rating, Affirmed NP
....Other Short Term, Affirmed (P)NP
....NSR Senior Unsecured Medium-Term
Note Program, Affirmed Aa2.za
....NSR Subordinate Medium-Term Note
Program, Affirmed A2.za
....NSR Other Short Term, Affirmed P-1.za
....Subordinate Medium-Term Note Program,
Affirmed (P)Ba3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Ba2
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Ba2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba2
....Commercial Paper, Affirmed NP
Outlook Actions:
..Issuer: Transnet SOC Ltd.
....Outlook, Remains Negative
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Surface Transportation and
Logistics published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113382,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1280297.
The local market analyst for this rating is Lisa Jaeger, +971
(423) 796-59.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Paco Debonnaire
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
