China Development Bank (CDB) has agreed to sanction R30bn ($2.4bn) loan to South African freight transport firm Transnet as part of a bilateral memorandum of understanding between the presidents of the two countries.
The loan will be used to fund locomotives that Transnet is buying from China South Rail (CSR) and China North Rail (CNR), as part of its 1,064 locomotives acquisition programme.
The South African firm has a total of 232 diesel and 359 electric locomotives on order with CNR and CSR respectively.
Transnet plans to avail of the R18bn ($1.4bn) first tranche over four years, while the second tranche is subject to market conditions and funding requirements.
The repayment term is 15 years, with a grace period of four and a half years while the locomotives are being built.
The company said that the loan would mitigate liquidity risk, maintain the cost of debt within acceptable levels, match the asset and liability profile taking into account the useful life of the locomotives, diversify funding sources and conserve its domestic credit lines.
So far, the company has secured 92% of the funding for its R50bn ($4bn) seven-year programme to buy 1,064 locomotives for increasing freight traffic volumes from 210 million tonnes to more than 350 million tonnes.
The company is spending more than R337bn ($27bn) over the next seven years on revamping its rail, ports and pipelines infrastructure.