As Transnet CEO Maria Ramos fills in the details of her turnaround plan, it is becoming clear that extensive private sector involvement and a more creative approach to financing will be central to restructuring the parastatal.
Wholesale privatisation may be out of the question for Transnet’s core rail and port operations, but the concessioning of specialised services —fiercely resisted by trade unions in the past — seems likely to expand.
Ramos previously announced that rail subsidiary Spoornet will be split into two divisions, one responsible for freight operations and rolling stock and the other for the upgrading and maintenance of the rail network.
She told Parliament’s public enterprises committee this week that this could allow private companies to become involved in freight operations.
Separating operations and infrastructure “gives us the opportunity to think about introducing other operators, as we have in our ports,” she said, adding that European Union models were being considered.
Minister of Public Enterprises Alec Erwin appeared to agree, telling the committee that the full benefits of specialised new port facilities could best be realised if they were serviced by more specialised rail links.
A secure, high-speed train, running from Pretoria’s car factories to the privately operated car terminal at Durban harbour would greatly facilitate vehicle exports, he suggested.
The French and German approach to rail franchising, involving state ownership of basic infrastructure and varying levels of private participation in freight services, has long been mooted as a remedy for an increasingly expensive and inefficient national freight system. But it is unlikely to win over unions, who reject the concessioning of port operations and fear further job cuts.
Raising enough cash to fund billions in new investment will require Ramos to convince a different audience that she is on the right path, but she will not be going straight to the bond market.
Erwin has delayed the announcement of recapitalisation plans for parastatals until October and it is unclear how much government support will be forthcoming. However, Ramos gave the committee an indication of Transnet’s likely approach.
“We are looking at public-private partnerships; we are potentially looking at some interesting stuff on the IPO [initial public offering] front for parts of the business, and we are looking at bringing in and focusing more on asset-based financing,” she said.
IPOs would make available a portion of the share capital in subsidiary companies for sale to private investors via the JSE Securities Exchange and perhaps international markets.
The partial privatisation of Telkom was conducted along these lines and listings continue to be favoured by the government because they allow the state to retain a controlling stake in “strategic” companies, while raising capital for their expansion.
But massive infrastructure investments planned for the next 10 years will require other financing models. Ramos, who has just returned from meeting financiers in London, is looking to leverage off an enormous asset base to raise cash without weighing down the balance sheet.
“Some of these big projects can be very appropriately financed using the asset base that you are building up. We’ve never done that, we’ve just gone out and borrowed money,” she said.
Asset-based finance is popular with start-ups and companies in turnaround or expansion phases. At its simplest it involves securing loans against the assets they are being used to purchase. Other relatively common instruments include the sale of debtors’ books and future invoices at a discount.
More complex deals aimed at unlocking the value of fixed assets by selling them and leasing them back, or converting income into capital, are also increasingly popular.
Transnet’s massive asset base, and its numerous long-term contracts with major companies, should mean that it has numerous options in the structured finance market.