TRALAC - Trade Law Centre

South Africa: US EX-IM extends R6bn Transnet guarantee amid debate on its future

Wednesday, 06 August 2014 Published: | Terence Creamer

Source: Engineering News (South Africa)

 

South Africa’s State-owned freight logistics group Transnet reported on Wednesday that it had secured a R6-billion guarantee from the US Export-Import (Ex-Im) Bank for the funding of diesel locomotives the company is buying from General Electric (GE).

The facility was confirmed amid a robust debate in the US about the bank’s future and followed news that the 80-year-old institution provided a record $1.7-billion in financing support for US exports to sub-Saharan Africa over the past ten months.

The GE locomotives form part of a larger R50-billion package for 1 064 locomotives – 599 electric and 465 diesel – which were being procured by Transnet from four separate consortiums. The contracts were awarded in March, with GE securing an order to supply 233 diesel locomotives at a base cost of R7.1-billion.

transnet locomotive600

The Ex-Im Bank guarantee could be drawn over a three-year period and had a repayment period of 14 years. It was mainly intended for GE’s share of the locomotives, which will be assembled at Transnet Freight Rail’s Koedoespoort facility under a localisation framework that has been built into the contract.

The guarantee enabled Transnet to raise funds in the markets for the financing of the GE locomotive transaction, allowing for Transnet to negotiate favourable repayment terms. “The required funding will be raised through bank loans supported by the Ex-Im Bank guarantee,” Transnet said in a statement.

It added that the term of the guarantee would extend its debt maturity profile and improve the match between assets and liabilities at a group that would pursue a R312-billion investment programme across is rail, ports and pipelines operations over the coming seven years.

The Transnet transaction came amid appeals from President Barack Obama’s administration, supported by a range of large US corporations, including GE, for the US Congress to reauthorise the bank, which provides credit to foreign buyers of US products.

Speaking to business leaders at the US-Africa Business Forum in Washington this week, Obama urged those Republicans pushing for a winding down of the bank to reauthorise it so as to sustain the competitiveness of US exports.

“I was trying to explain to somebody that if I’ve got a Ford dealership and the Toyota dealership is providing financing to anybody who walks in the dealership and I’m not, I’m going to lose business. It’s pretty straightforward.  We need to get that reauthorised,” Obama asserted.

Ex-Im Bank would be forced to close if Congress did not renew its charter by September 30, 2014.

GE chairperson Jeff Immelt told the Financial Times that Ex-Im Bank was crucial for US companies operating in Africa because it showed that government was prepared to have “some skin in the game”. Any closure would mean “we are basically making a statement as a country that we do not think that exports are important”.

Former US President Bill Clinton also weighed in, describing attacks on the bank as “ridiculous”, while former New York Mayor Michael Bloomberg warned that closing the bank would put American businesses at a disadvantage.

Transnet, meanwhile, said the Ex-Im agreement confirmed the continued attractiveness of its portfolio of projects to 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, which invested a record R31.8-billion last year, is planning to invest a further R33-billion in 2014/15. It had total borrowings of R90.4-billion at the end of March, with R22.4-billion in new debt having been raised in 2013/14.

The group planned to raise a further R22-billion in the current financial year, mostly from the domestic bond market, as well as from development finance institutions and export credit agencies.

 

 

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