As with so much else in South Africa currently, the indication given by new Transnet chairperson Andile Sangqu that the State-owned freight logistics group may require an equity injection is shocking but not surprising.

The bail-out warning was provided by Sangqu during the troubled group’s presentation of its results for the 2022/23 financial year, which embattled CEO Portia Derby described as having been “harrowing”.

Given the collapse in the operational performance of the company over the past few years and revelations of extreme State capture during the Zondo Commission, it was arguably inevitable and, thus, not surprising that Transnet should join the long list of South African State-owned companies in financial distress.

It is nevertheless still shocking for two reasons.

Firstly, Transnet has always prided itself on being financially self-sufficient and, secondly, the equity-injection proposition comes at a time when the National Treasury’s ability to step in as a backstop is extremely limited.

While stressing that the group’s immediate focus was on a ‘back to basics’ recovery of its operational performance – a decline reflected in the net loss of R5.7-billion, from a fair value adjustment-distorted profit of R5-billion in the prior year – he highlighted that the rise in borrowings to R130-billion had resulted in Transnet having to make monthly repayments of R1-billion.

From a purely business perspective, the “financial restructuring” hinted at by Sangqu is understandable, particularly if the plan is to transition from stabilisation to growth.

Nevertheless, the group’s State-owned status means that any equity injection has implications for both the National Treasury, which is staring down the barrel of a debt crisis, and the country’s small base of taxpayers, suffering the quadruple scourges of persistent inflation, rising interest rates, flatlining earnings and debilitating loadshedding.

What’s more, the commodity windfall that buoyed revenue collections in the immediate Covid aftermath has dissipated on the back of price pullbacks, power-cut-induced production cuts and a dismal rail performance, which has led many to resort to more expensive road hauliers.

Transnet’s shareholder Minister Pravin Gordhan, who made a hard-hitting statement in which he instructed the board to “conduct a thorough review of the executive management, with a view to establishing whether persons with the right skills are optimally utilised to deliver on the mandate”, immediately highlighted government’s current fiscal constraints.

Transnet’s financial position should be improved, he argued, primarily through an operational turnaround, as well as cost cutting and a “crowding in” of private finance through partnerships rather than privatisation.

In other words, the shareholder is demanding corrective action before it will even contemplate support.

Recent reports suggest that this action could have implications for the leadership of Transnet and some of its key business units, particularly Transnet Freight Rail, which has been in the crosshairs of key clients for more than a year.

The unit recorded a 13.6% fall in volumes to 149.5- million tons from an already low 173.1-million tons in the previous year. In 2017/18, rail volumes were above 220-million tons.

Something’s surely going to give!