State-owned transport group Transnet will approach local and foreign capital markets to raise R25-billion over the next three years to help fund its R78-billion capital investment programme.

Transnet CFO Chris Wells said on Tuesday that the company would “progressively” go into the capital markets to raise money over the next three years, but added that it was confident that it could raise it cost effectively and that the “high ratio” of cost-to-debt could be lowered.

He explained that Transnet’s legacy of debt was to blame for the 11,9% cost-to-debt ratio.

The company was also confident that its gearing ratio, which improved from 46% in 2005/6 to 39% in 2006/7, would remain within the limit it had set itself, despite the net capital raising programme.

“It [the gearing level] gives us significant borrowing capacity as we go out to the net capital markets,” Wells said.

The group’s cash interest cover was 5,4 times and Wells said that the company was aiming to keep it above a five times cover.

“That is where rating agencies want us to be.”

Wells said that the first set of bonds would be issued in the “next few months”.

To facilitate the capital-raising programme, Transnet had appointed advisors Absa Capital and Rand Merchant Bank to implement the domestic medium-term note programme, which would enable it to tap the domestic bond market. It also arranged a multisourced facility with an export credit agency to assist with funding for imported equipment.

The debt would be used to fill the shortfall between Transnet’s cash flows from operations and its funding requirements for its capital investment programme, which would peak in 2009.

Transnet’s capital expenditure reached a record in 2007, when it spent R11,7-billion. In 2008, it planned to spend R16,9-billion and, in 2009, it would invest R21,5-billion in capital, CEO Maria Ramos told a media briefing in Johannesburg.

The company also hinted that this figure might be increased in the future, as it added new projects every year.

The bulk of Transnet’s R78-billion programme would be invested in its rail business, with some R43,8-billion over a five-year period, or 45%, earmarked for Spoornet.

This business unit would spend more than R15-billion between 2007 and 2012 on its general freight business, where total volumes did not grow in the last financial year.

The general freight business’ volumes declined by more than 3% between 2006 and 2007 and Transnet blamed production constraints from its customers, capacity limitation, and derailments, for the lower volumes.

The National Ports Authority would spend in the order of R18,5-billion, or 24% of Transnet’s total capex programme, and the South African Port Operations would spend R9,5-billon, or 12%, of the R78-billion over five years.

At least R10-billion had been earmarked for the petroleum pipeline business unit, Petronet, which planned to build a R9,3-billion multiproduct pipeline between Johannesburg and Durban.

Ramos said, however, that this figure could escalate if the project was delayed.

Earlier this year, Transnet said that the construction of the multiproducts pipeline might be delayed, as the National Energy Regulator of South Africa did not agree to a 5,6% tariff increase, which it argued would have been used to fund the project.