One of the most challenging jobs that BRPs and turnaround professionals have to undertake is the removal of an existing board and replacing it with a new one.
On the surface, one may question why this is hard. However, the reform that needs to be implemented in the wake of wielding this big stick is taking, yet necessary. Creditors want to be assured that the company will return to profitability, and post-commencement financiers will want assurances that they are not funding destructive habits.
Transnet is in the process of undergoing a significant reform programme and has knocked on Governments doorstep more than once asking for bailout money. It seems as if Government is taking a hard line, stressing that there must be reforms before it will even think of allocating funds.
Hardline
The News24 article points out that Treasury said that it will not step in to repay Transnet’s debt or provide any capital for investment until it has reviewed its turnaround plan. The state-owned rail operator must also embed the National Logistics Roadmap into its own strategic plan.
The hardline on Transnet is alarming, as the company faces a R7 billion debt repayment in the coming week, with another R10 billion due for repayment by the end of March.
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Transnet is in deep financial trouble and has, in the past two weeks, produced a turnaround plan that involves the Treasury taking over R61 billion of its debt and providing funding of R47 billion to fix operations.
The article adds that Head of the Asset and Liability Unit, Mmakgoshi Lekhethe, said that Transnet had been advised to approach lenders to negotiate a rollover of the debt that is immediately due or to negotiate short-term facilities. The largest debt holder to whom repayment is due next week is the Public Investment Corporation (PIC), which may be persuaded to roll over its loan, but on a tight time frame.
Finance Minister, Enoch Godongwana, said that the Treasury would not make the same mistake as it had made with Eskom and provide large sums of financial support without a guarantee that there would be efficiency gains. However, he did concede that there were immediate repayment pressures.
The News24 article points out that Godongwana said that until a “deal was stitched with Transnet” in which it fully embedded the National Logistics Roadmap developed by the Presidency, no financial support would be forthcoming.
Private-sector participation
The article points out that the roadmap, due to go before the Cabinet shortly, envisages a large role for the private sector, which will be called on to take up long-term rail and port concessions. The roadmap also envisages the splitting up of Transnet Freight Rail, with the rail infrastructure hived off to the Department of Transport, and a rail-operating company, which would remain state-owned and compete with private players.
In his speech to Parliament, Godongwana said that the government had made the mistake of focusing on fixing Eskom when what was required was to fix the electricity supply. In the case of Transnet, the issue was to fix the “structural aspects” hampering the sector rather than the company.
“This approach is consistent with the key lesson from our reform of the electricity sector that resolving these challenges must be based on transforming the sector and not trying to save an entity.”
The article adds that, similarly to the hard line taken on Transnet, the Treasury has tightened the debt bailout conditions on Eskom. In the budget, the Treasury undertook to provide Eskom with R254 billion of debt relief through a non-interest-bearing shareholder loan. If Eskom sticks to the conditions, the loan will be converted to equity.
But, in a tightening of conditions, the loan will now be an interest-bearing loan, which the medium-term budget statement said is to “better reflect the cost of the arrangement”. Treasury director-general Duncan Pieterse said the new arrangement was to “improve the credibility” of the debt relief arrangement.
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Treasury will also amend the Eskom Debt Relief Bill to empower Godongwana to reduce the amount of debt relief to Eskom should it fail to meet all of the bailout conditions. Among them is the sale of the Eskom Finance Corporation, which finances home loans to staff. The sale of the finance company has been spoken about for years, but little progress has been made.
Future ramifications
I say that it seems as if Government is taking a hard stance. The proof of the pudding will be in the eating, and it will be interesting to see how long Government can maintain this position before it becomes untenable.
Government has provided some insights into Transnet’s reformation and has stressed that there will be increased involvement from the private sector in the future of logistics in the country. However, Government is also adamant that it will be the owner and custodian of key infrastructure. This will most likely be done through Transnet; therefore, Government cannot afford to withhold funds indefinitely if it will cause irreparable damage to the company.
The future will be interesting indeed.
The Mystery Practitioner is an industry commentator focusing on the shifting dynamics and innovative thinking that BRPs and turnaround professionals must embrace to achieve business success.
