State-owned Transnet on Thursday signed a R30-billion loan facility agreement with China Development Bank (CDB) for the funding of hundreds of locomotives to be manufactured by China South Rail (CSR) and China North Rail (CNR) as part of Transnet Freight Rail’s (TFR’s) 1 064 locomotives acquisition programme.

Transnet acting CE Siyabonga Gama and CDB VP Li Gang signed the agreement on the sidelines of the World Economic Forum in Cape Town.

The loan agreement formed part of a $5-million bilateral memorandum of understanding signed in December between President Jacob Zuma and his Chinese counterpart President Xi Jinping.

The proceeds of the loan would be used to fund the acquisition of 232 diesel and 359 electric locomotives it was procuring from CNR and CSR.

Transnet would draw down the first tranche of R18-billion over four years.

Public Enterprises Minister Lynne Browne commented that the loan agreement reaffirmed the healthy appetite from foreign investors to fund the Transnet build programme.

“This transaction is expected to yield local job creation opportunities, increase South African rail manufacturing capacity and drive skills development as the contracted original-equipment manufacturers are expected to adhere to stringent localisation and supplier development targets,” she added.

Transnet would draw down the second tranche of the loan subject to market conditions and funding requirements, based on the projects included in the group’s R337-billion Market Demand Strategy (MDS).
 
The repayment term of the loan was 15 years with a grace period of four-and-a-half years, while the locomotives were under construction. It was also a significant milestone in Transnet’s funding strategy as it represented 60% of the more than R50-billion required for TFR’s 1064 programme.

Including this agreement, Transnet had now secured 92% of the required funding for the 1 064 locomotive acquisition programme.

Transnet, in March, announced that it had secured separate funding agreements with the Export-Import Bank of the US and Export Development Canada, worth a collective R13-billion, to fund the acquisition of locomotives from General Electric and Bombardier Transportation.
 
The acquisition was at the heart of Transnet’s MDS aimed at increasing volumes while reducing the average age of the company’s locomotive fleet. The 1 064 programme was designed to reinforce TFR’s plans to grow volumes from the current 210-million tons to over 350-million tons in seven years.

Both CSR and CNR complied with the minimum local content criteria for rolling stock of 60% for electric locomotives and 55% for diesel locomotives.