Transnet has secured a R6 billion funding guarantee with United States export credit agency, US-Exim for the funding of diesel locomotives the company is buying from General Electric (GE).

This, according to Transnet, is a massive thumbs-up from the international investor community, affirming the state owned enterprises’ creditworthiness and South Africa’s attractiveness as an investment destination.

In March this year, Transnet announced an agreement to purchase 599 electric and 465 diesel locomotives from four original equipment manufacturers, including General Electric. The guarantee is mainly intended for GE’s share of the locomotives – which is 233 locomotives as well as other acquisitions from the manufacturer.

The locomotives are part of Transnet’s locomotive fleet renewal programme – a key element of the company’s seven-year R312 billion investment programme – The Market Demand Strategy.

The majority of the locomotives are built at Transnet’s engineering and manufacturing facilities throughout South Africa and include stringent supplier development, skills development and localisation requirements, in line with government policy.

The guarantee from US-Exim enables Transnet to raise funds in the markets for the financing of the GE locomotive transaction. It allows for Transnet to negotiate favourable repayment terms, including the tenor and interest rates.

The required funding will be raised through bank loans supported by the US-Exim guarantee. The terms of funding to be backed by the guarantee will be dependent on a number of factors, including market conditions, pricing and investor appetite.

The facility will be drawn over a three-year period in line with the delivery schedule for the locomotives. The repayment period is 14 years. The term will extend Transnet’s debt maturity profile while improving the match between assets and liabilities.

The agreement confirms the continued attractiveness of Transnet’s portfolio of projects, the company and South Africa among major investors. Crucially, it is in line with the company’s agreed funding strategy which is premised on diversifying sources in a cost effective manner. Funding from the debt capital markets accounts for only a third of Transnet’s investment programme – the remainder will be raised from cash generated from operations.

Transnet raises funds on the strength of its financial position and receives no funding or guarantees from the fiscus.