It looks likely that cash-strapped Transnet will face a rating downgrade.
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Rating agency S&P Global has placed beleaguered state-owned entity (SOE), Transnet on credit watch.
This means that the rail and port SOE is at a greater risk of being downgraded.
S&P said that it does expect Transnet's operational performance to gradually improve, but the rating agency anticipated that the company's cash flow will not rise sufficiently or quickly enough to maintain its existing liquidity, leverage, and capital structure.
The agency noted that Transnet also faces capital expenditure (capex) requirements and that the SOE has elevated debt servicing costs which could lead to for operational underperformance.
“We believe the company will likely require incremental government support to transform its capital structure, fund capex and meet upcoming debt maturities,” S&P said.
“Therefore, we placed the ratings on Transnet, including the 'BB-' issuer credit rating, national scale ratings, and our rating on its senior unsecured debt, on credit watch with negative implications.”
The agency added that the credit watch placement reflects the increased likelihood of a downgrade if the anticipated turnaround in Transnet's business performance and cash flow generation does not materialise soon enough to control the current leverage levels and capital structure.
Last week, S&P revised Eskom’s long-term global scale ratings from stable to positive.
Eskom said that it welcomed the upgrade of the entity’s ‘B’ long-term global scale foreign and local currency ratings.
S&P also affirmed Eskom’s ‘B’ issue rating on the group’s senior unsecured debt and the ‘BB-’ foreign currency issue rating on the government-guaranteed debt.
Eskom noted the decision by S&P and said that it illustrated confidence in the impact of the R254 billion financial support package introduced through the Eskom Debt Relief Act.
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