Transnet strikes R3 billion deal with German bank

The Market Demand Strategy

Transnet will use the proceeds of the loan to fund the acquisition of 240 electric locomotives it will build with Bombardier in its manufacturing facilities in Durban. These are part of Transnet's record-breaking 1064 locomotives acquisition programme.

The agreement was signed by Siyabonga Gama, Transnet's acting group chief executive and Dr Jan Martin Witte, KfW's head of infrastructure in Southern Africa, at Transnet's head office at the Carlton Centre, Johannesburg.

The agreement is evidence of Transnet's focus on agility and innovation in raising the required funding to execute its seven-year rolling R336 billion infrastructure investment programme - the Market Demand Strategy.

The bankability of Transnet

The loan will mature in 15-years, with a five-year grace period in which Transnet will only be paying interest.

In line with the company's currency risk mitigation policy, the agreement was negotiated in rand terms and, therefore, has no currency risk. Crucially, the cost of the loan is in line with the company's average cost of debt.

Only a third of Transnet's funding requirement for the Market Demand Strategy (MDS) is raised through the markets - the rest of the capital investment programme is funded through cash generated from operations.

German ambassador to South Africa, Dr Horst Freitag, emphasised the solid trade relations between the two countries. South Africa is Germany's largest trading partner in Africa.

Agreements like this are an affirmation of Transnet's successful efforts in strengthening its financial position and confirm that the company is on the right track. They are an attestation of the attractiveness, commercial viability and bankability of Transnet and its projects from reputable international investors.

1064 diesel and electric locomotives

In March 2014, Transnet awarded a contract for the building of 1064 diesel and electric locomotives to four global original equipment manufacturers.

The company awarded CSR Zhuzhou Electric Locomotive and Bombardier Transportation contracts to build 599 electric locomotives, and General Electric Technologies and CNR Rolling Stock to build 465 diesel locomotives.

All the locomotives except 70 will be built at Transnet Engineering's plants in Koedoespoort, Pretoria and Durban.

Two weeks ago, Transnet concluded a R30 billion loan facility agreement with China Development Bank (CDB) for funding 232 diesel and 359 electric locomotives it is building with China North Rail and China South Rail, respectively.

The locomotive build programme is critical for the implementation of the Market Demand Strategy and is intended to modernise the fleet in a drive to improve reliability and customer satisfaction.