As Transnet’s rail and port operations stabilise, debt becomes the next problem 

While Transnet has returned to profitability and arrested the perennial decline of freight rail volumes, one crippling problem persists: unsustainable and suffocating levels of debt.

Transnet’s 2026 annual report shows that the state-owned logistics group now carries debt of R150.7 billion in its books, which is more than its annual revenue of R88.5 billion.

Read: Transnet returns to profitability but long road to recovery remains

So smothering is this debt that Transnet is in breach of debt conditions with some lenders and facing an increasing risk of defaulting on its debt repayments.

Underscoring Transnet’s breach of debt conditions is its rolling cash interest cover, which declined to 1.5 times from 1.8 times a year ago. In 2022, this cover was at highs of 2.6 times.

Source: Transnet 2026 annual report

An interest cover measures a company’s ability to pay interest due on outstanding debt, typically using earnings before interest, taxes, depreciation and amortisation (Ebitda).

A decline in the interest cover, as has happened in Transnet’s case since 2022, means it is burdened by debt expenses, and its ability to meet interest payments is questionable.

As part of their borrowing conditions with Transnet, some lenders require the company to have a cash interest cover of between two and 2.5 times. Transnet cannot comply with this requirement because its cash interest cover profile is 1.5 times.

How Transnet avoids defaults

Ordinarily, this would make lenders wary of providing money to a company to fund its operations, as it would be seen as at risk of defaulting on debt and interest repayments when they become due.

In Transnet’s case, it is finding ways to circumvent the conundrum, because defaulting on debt and interest repayments is a worst-case scenario that it has, until now, avoided.

A single default would trigger a cross-default event, as other lenders would immediately call for debt repayments.

This would push Transnet to ask for more government bailouts or assistance to settle debt payments it cannot afford.

Transnet group CEO Michelle Phillips has been emphatic about the company not wanting more bailouts from the government, opting instead to stabilise its rail and port operations to generate more revenue and become self-sufficient.

To prevent a default scenario, Transnet has sought waivers from its lenders, asking them to defer debt repayments. Waivers have been agreed to by lenders.

Another strategy that Transnet employs to prevent a default scenario is to raise new funding to repay debt that becomes due, which it did in its latest reporting period.

According to Transnet’s annual report, the company raised R36.2 billion in new funding in debt capital markets to repay debt worth R29.1 billion that became due. Transnet is able to raise new debt by using government guarantees, approved by the National Treasury in 2023.

Read: Transnet bailouts? Government bends with R94.8bn more in guarantees

Raising new debt resulted in more debt on its books, with total debt rising from R144.8 billion last year to R150.7 billion, which consists of short-term (R35 billion) and long-term borrowings (R115.7 billion).

Phillips has acknowledged that debt is a pain and risk point for Transnet.

She says the only way to remedy this situation is through “disciplined execution” and accelerating the company’s turnaround strategy.

The strategy includes growing freight rail volumes by partnering with private sector companies, tackling theft and vandalism on its infrastructure, and fixing ports to improve efficiencies.

Read: Transnet rail recovery starting to show up in rising coal exports 

This, Phillips said, will ultimately improve Transnet’s cash generation profile and Ebitda, helping it to independently pay down debt.

View or download a pdf of the above here.

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