Train wreck: Moody’s downgrades Transnet’s ratings

Train wreck!

Transnet is now the latest government enterprise to bite the dust after Moody’s downgraded two of its rating earlier last week. Last Wednesday Moody’s Investors Service (“Moody’s”) announced the downgrade of the corporate family rating (CFR) of Transnet SOC Ltd (Transnet) to Ba3 from Ba2.

All short-term ratings were affirmed, including the national scale other short-term ratings of P-1.za Transnet’s baseline credit assessment (BCA), a measure of standalone credit quality before any assessment of potential extraordinary government support, has been lowered to b1 from ba3. Economist Piet Croucamp said debt was a big problem at all state enterprises.

He said Transnet was, however, not the worst-run state-owned enterprise in South Africa. “The problem of wiping out a decade of state capture is enormous in any management context. Transnet is one of the primary targets of crime, and it is not entirely within their jurisdiction to address it,” he added. Croucamp said what made it difficult was operating in the free market as a state-owned entity and being judged to be a standing business in terms of their balance sheet and how they invested and spend capital.

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“The primary problems are that they operate in the grey area because that they operate in the private sector as a state-owned enterprise,” he said.

Economist Mike Schussler said Transnet was in trouble and had various problems. Schussler said in the past four weeks 130km of cable theft were stolen from Transnet. “It’s ongoing because when the cables are stolen they need to move to diesel trains and the diesel prices just hit record highs,” he said.

Schussler explained it was more expensive to run a diesel engine than it is to run an electric engine although the electricity prices also increased “Another thing that hit them was that diesel engines can only go about 60km/h where the electric engines can do 80km/h.” Schussler said the amount of cargo you can move at 80km/h was much more than at 60km/h.

“On the coal, the line is where theft was taking place which was bad considering we were experiencing record high coal prices,” Schussler said. He said Transnet should be coining it considering the coal shortage.