State-owned freight logistics group Transnet confirmed last week that it had received the backing of leading American and Canadian development funding agencies for its purchase of more than 500 diesel and electric locomotives from General Electric and Bombardier Transportation respectively.

The support had been extended in the form of two separate funding agreements, worth a combined value of R13-billion and backed by leading South African financial institutions.

The Export-Import Bank of the US extended a R6-billion guarantee for 293 General Electric locomotives, most of which would be built at Transnet Engineering’s Koedoespoort factory, north of Pretoria.

The funds raised as a result of the guarantee were derived from Absa/Barclays (R2.25-billion), Standard Bank (R2.25-billion) and Old Mutual (R1.5-billion).

The second agreement involved a R6.99-billion loan facility for the Bombardier locomotives, which would be assembled at Transnet Engineering’s Durban facility.

In what was Export Development Canada’s first-ever rand-denominated loan, the agency provided R5.24-billion, with South Africa’s Investec Bank contributing the R1.75-billion balance.
Transnet CEO Brian Molefe said the Ex-Im Bank-backed loan was a 14-year facility and would be drawn over a three-year period in line with the delivery schedule for the locomotives. The Export Development Canada-Investec loan was a 13-year facility.

The funding had arisen as a direct result of contracts awarded by Transnet in March last year as part of a R50-billion acquisition of 1 064 locomotives from North American and Chinese suppliers. The programme made up the lion’s share of what was dubbed the “biggest rail recapitalisation programme in South Africa’s history”, with around 1 300 locomotives to be purchased.

The purchase was split four ways, with General Electric South Africa Technologies and CNR Rolling Stock South Africa to supply 233 and 232 diesel locomotives respectively, and CSR Zhuzhou Electric Locomotive and Bombardier Transportation South Africa to supply 359 and 240 electric locomotives apiece.

Molefe reported that both Bombardier and General Electric had completed their technical designs and that the first General Electric locomotives would be rolled out in July.

Similarly, CSR Zhuzhou Electric Locomotive had completed its technical design, with the first prototype to roll off the Koedoespoort production line at the end of March.

He was not overly concerned by the fact that CNR’s technical design was only 90% complete, noting that it was the first time that the Chinese original-equipment manufacturer would be producing locomotives in South Africa. It, too, would set up operations in Durban.

All four suppliers had exceeded the stipulated 40% local-content threshold, with Molefe reporting that they would all achieve at least 60% localisation, or better.

The goal of Transnet’s supplier development programme would be to stimulate investment in plants, ensure technology transfer, benefit downstream suppliers, improve South Africa’s skills base and promote job creation and small business.

Molefe also stressed that the group’s R300-billion-plus market demand strategy (MDS) remained intact despite the weak economic climate, as did its intention to fund two-thirds of the capital investment through revenue and the balance through debt.

“The capital expenditure will not be funded from the fiscus and none of the borrowings will be guaranteed by the State,” he stressed.

The R13-billion raised in support of the locomotives-acquisition programme formed part of the group’s overall plan to raise R23.8-billion in 2014/15 in support of the MDS, with the bulk of the funding to be derived from domestic capital markets.

To date, R90-billion had been investment in support of the MDS since its launch in 2012.