GOVERNANCE WATCH
By InsidEntity Editorial Desk · Sep 16, 2026 · 15 min read
On 1 January 2026 Transnet sold 49.999% of the Pier 2 container terminal at Durban to International Container Terminal Services Inc for R10.5 billion. The transaction produced a gain of R12.5 billion, recognised in full in the year to 31 March 2026. Transnet reported a profit after tax of R4.647 billion for that year, its first annual profit since 2022, against a loss of R1.906 billion the year before. The Auditor-General issued an unmodified opinion.
Transnet retains 50.001% of the terminal company. Management control passed to ICTSI, and Durban Gateway Terminal is now recognised as an associate of the group rather than a subsidiary.
This is not an argument that the transaction was wrong. Bringing in an experienced global terminal operator is the entire point of it, and Pier 2 is the asset where South Africa’s port performance problem has been most visible for longest. It is an argument that two things happened at once, the group’s return to profit and the transfer of operating control over a national asset, and that the first has been reported far more thoroughly than the second. The same structure is now scheduled to be repeated across the ports and the rail network.
Status of this piece
This is a Spotlight paired with ratings.
Company Risk Rating: 2.76 | Financial Stability Rating: 1.7
| Pillar | Score |
|---|---|
| Director Independence | 5.00 |
| Director Capacity | 2.05 |
| Auditor Independence | 1.50 |
| Shareholder Influence | 2.49 |
| Composite, equal weights | 2.76 |
The pillars reconcile: (5.00 + 2.05 + 1.50 + 2.49) / 4 = 2.76.
The four pillars carry equal weight because Transnet’s directors have not yet returned signed director independence questionnaires. Director Independence is held at the benchmark 5.00, which is a placeholder rather than an assessment. Once the questionnaires are returned the published 40/20/20/20 weighting applies and Director Independence carries 40% of the composite on its own. On the other three pillars as currently scored, that produces 3.21 if Director Independence returns 5.00 and 1.21 if it returns 0.00. Those are arithmetic bounds, not forecasts. No band label is attached to the 2.76, because a band would imply a settled position that does not yet exist.
The FSR of 1.7 is scored from the FY2026 audited statements. Those are the same statements that carry the R12.5 billion gain.
What the gain did to the result
The gain is larger than the profit it sits inside, and the size of the difference does not have to be estimated.
Transnet reported a net profit of R4.647 billion. Headline earnings, which strip out capital profits and losses, show a loss of R4.884 billion. The swing between those two figures is roughly R9.5 billion, and it is the clearest single statement of what the transaction did to the reported result.
That is a statement about one line in one year, and it should not be stretched further. A disposal gain is not evidence that the operating business is failing. It is evidence that the reported profit is not a measurement of the operating business.
The R12.5 billion is also not one thing. It comprises the profit on disposing of the 49.999% interest, and a fair value adjustment of approximately R3.6 billion arising from revaluing the retained 50.001% stake to R5.3 billion.
That second component is worth reading slowly. Roughly R3.6 billion of the gain did not come from the disposal proceeds. It came from remeasuring the 50.001% Transnet retained, at fair value, because the loss of control required it to be remeasured. Under IFRS this is correct and unremarkable accounting. Stated plainly it is still striking: a portion of the group’s return to profit was recognised because Transnet stopped controlling the asset.
Set against the five-year record, the shape of the year is clearer. Transnet posted a profit of R5 billion in 2022, then losses of R5.7 billion in 2023, R7.3 billion in 2024 and R1.906 billion in 2025, before this year’s R4.647 billion profit.
| Measure | FY2026 | Movement |
|---|---|---|
| Revenue | R88.6bn | +7.1% |
| Net operating expenses | R57.7bn | +10.8% |
| EBITDA | R30.9bn | +0.7% |
| EBITDA margin | 34.8% | down 2.2 pp |
| Rail volumes | 167.9mt | +4.9% |
| Pipeline volumes | 14.3bn litres | +6.9% |
| Profit after tax | R4.647bn | from a R1.906bn loss |
| Headline earnings | Loss of R4.884bn | |
| Borrowings | R150.7bn | from R144.8bn |
| Gearing | 49.4% | from 49.6% |
| Capital investment | R23.3bn |
The operating picture in that table is one of genuine recovery running into a cost problem. Volumes rose on both rail and pipeline, driven by tariff increases and by the maintenance and asset-availability work under the turnaround strategy launched in October 2023. Costs rose faster. Operating expenses outpaced revenue by more than three percentage points, EBITDA was effectively flat, and the margin gave up 2.2 points. The group moved more volume and kept less of what it earned. The structural drags are the ones Transnet has been citing for years: historic under-investment, theft and vandalism, and the declining reliability of the legacy fleet.
The forward capital programme is R129.1 billion over five years, of which R115.9 billion, close to nine rands in every ten, is earmarked for maintaining and rehabilitating existing infrastructure.
On the balance sheet, a year carrying a R12.5 billion gain still added R5.9 billion to borrowings and moved gearing by two-tenths of a percentage point. National Treasury extended guarantees totalling R98 billion between 2023 and 2025 and approved a further R14.8 billion in grant funding through the Budget Facility for Infrastructure. The distance between the reported result and the financial position is the whole of that paragraph.
Majority shareholder, control elsewhere
The accounting treatment is the clearest statement of what changed. A subsidiary is consolidated line by line because the parent controls it. An associate is equity-accounted because the investor has influence but not control. Transnet moved DGT from the first category to the second while holding 50.001% of its shares.
So the state-owned entity holds the majority of the shares and does not control the asset. That is a coherent commercial outcome, and it is the outcome the transaction was designed to produce: an operator that runs terminals for a living now runs this one. But it is a structure the public record should carry in plain language rather than in the basis-of-preparation note, because ownership is how the state’s interest in a strategic asset is usually described, and here ownership and control have been separated.
The narrow governance question follows from that separation, and it is answerable rather than rhetorical. Which decisions are reserved to Transnet as majority shareholder, how the terminal company’s board is composed, what happens to the reserved matters if the shareholding changes, and what triggers a change of control. None of that is in the results announcement.
It will not be the last time
The Transnet National Ports Authority is being incorporated as a wholly owned subsidiary, and further private-sector participation is planned. The accounting separation of Transnet Freight Rail into the Transnet Freight Rail Operating Company and the Transnet Rail Infrastructure Manager was completed during the year. Rail Access Agreements have been concluded with 11 train operating companies, with the first operators expected to begin services during 2026/27, an initial 24 million tonnes of additional capacity and potential capacity of up to 52 million tonnes.
Each of those arrangements will raise the same two questions: who holds the shares, and who makes the decisions. They are not the same question, and at Pier 2 they now have different answers. DGT is the first completed instance of a template, not an isolated deal, and the terms on which the first one was done are the terms the next ones will be measured against.
On the audit
Transnet welcomed the Auditor-General’s confirmation that its reporting of irregular expenditure was accurate and complete in all material respects.
That is a meaningful step and it should be read for what it is. Transnet received an exemption from the disclosure requirements of section 55(2)(b) of the PFMA covering the 2021/22 to 2023/24 financial years, granted to allow it to build the internal controls needed to report irregular expenditure accurately in the first place. A confirmation that the number is now complete is a statement about the reliability of the reporting. It is not a statement about the size of the number.
Reliable reporting is the precondition for everything else. It is not the same as a clean operating record, and the two should not be collapsed into one another.
What the pillars say
Auditor Independence scores 1.50. The pillar is a published tenure clock: the longer a single audit engagement runs, the lower the score, with the terminal band at more than ten years. A 1.50 places this engagement deep in that clock, and the appointment date behind it is listed among the open items below.
The clock also shows what it does not measure. Where a state-owned entity is audited under a statutory arrangement rather than by a board’s appointment, tenure is not a governance choice and rotation is not a governance remedy. The score still describes the same condition, a long and unbroken relationship between an entity and the people who check its numbers, but the entity cannot change it, and readers should weigh it accordingly.
Shareholder Influence scores 2.49. Transnet has no listed equity and one shareholder. The monitoring channels that operate at a listed company, a dispersed register voting at a general meeting, analysts publishing estimates against management’s own, a price that moves when something goes wrong, are absent by construction. What replaces them is the parliamentary and Treasury oversight that accompanies the guarantees and grant funding above. That is real scrutiny, and it is scrutiny of a different kind: periodic, political, and exercised by a shareholder who is also the fiscal authority standing behind the debt.
Director Capacity scores 2.05. Director Independence at 5.00 is a placeholder, and the note at the top of this piece explains what happens when it becomes an assessment.
What the 1.7 is measuring
The Financial Stability Rating is built from five indicators, each contributing up to one point, tested against three years of audited results wherever a three-year pattern is the relevant test.
| # | Indicator | Threshold | Basis |
|---|---|---|---|
| 1 | Revenue growth | At least 2% growth in each of the past 3 years | One third of a point per qualifying year |
| 2 | Net profit after tax (NPAT) margin | At least 5% margin in each of the past 3 years | One third of a point per qualifying year |
| 3 | Net asset value (NAV) | Positive in each of the past 3 years | One third of a point per qualifying year |
| 4 | Current ratio | At least 1.5x in each of the past 3 years | One third of a point per qualifying year |
| 5 | Cash ratio | Total expenses divided by total cash, 2x or below | Binary, current year only |
We have not built out the indicator-by-indicator breakdown behind Transnet’s 1.7, and this piece does not present one. What the group’s own reported profit history makes visible, without needing that breakdown, is why the NPAT margin indicator is very unlikely to have contributed much to the score.
The three years relevant to this rating are FY2024, FY2025 and FY2026. Transnet reported a loss of R7.3 billion in FY2024 and a loss of R1.906 billion in FY2025. FY2026 shows a net profit of R4.647 billion, but headline earnings for the same year, the reported profit with capital gains and losses stripped out, was a loss of R4.884 billion. On a measure built from net profit after tax rather than headline earnings, the FY2026 result would carry the R12.5 billion Pier 2 gain and could register positively for that year in isolation. Even so, two loss-making years out of three sit inside the same three-year window, which is consistent with a low score on this indicator regardless of how the third year is treated.
That is an inference from Transnet’s own disclosed profit history, not a claim about the other four indicators, which this piece has not attempted to reconstruct. The 1.7 should be read as the composite outcome of all five, not as a single explained number.
Why a single year’s profit is not a rating
InsidEntity scores the Financial Stability Rating on full-year audited statements only. Interim and half-year results are never used. The reason is visible here: a full-year figure is the most reliable number a company produces, and it can still be dominated by a single transaction that will not repeat.
A disposal gain is not recurring earnings. It records value realised once, in one transaction, and in this case roughly R3.6 billion of it was not realised at all but recognised on remeasurement. Neither component demonstrates that the operating business can produce that contribution again next year. The FSR describes financial condition as the audited record leaves it, and a non-recurring gain inside that record does not change the condition it describes.
Transnet reported its first profit in four years, a headline loss of R4.884 billion, and scores 1.7.
What FY2027 has to show
FY2027 is the first full year in which no Pier 2 gain appears in the result. Four things are worth watching.
- The spread between revenue growth and cost growth. This year it ran the wrong way, 7.1% against 10.8%. FY2027 will show whether that gap narrows or widens.
- EBITDA margin. 34.8%, down 2.2 percentage points. FY2027 will show whether the margin stabilises or continues to contract.
- Rail volumes, and where they come from. 167.9 million tonnes this year, with revenue growth partly tariff-driven. The third-party operators start running.
- Borrowings. R150.7 billion and rising, now without disposal proceeds to lean on.
None of that dismisses what improved this year. Volumes rose, the audit opinion was unmodified, and the irregular expenditure number is finally reliable enough to be audited as complete. The question FY2027 will answer is whether the operating recovery can stand on its own without a transaction doing the heavy lifting.
What we would want to see
- The DGT shareholders’ agreement: reserved matters, board composition of the terminal company, change-of-control triggers, and the term of ICTSI’s management rights.
- The basis on which control was assessed to have passed while 50.001% was retained, and the valuation methodology supporting the R5.3 billion carrying value of the retained stake.
- The commercial terms of the Rail Access Agreements: tariff basis, access priority where capacity is contested, and who carries the cost of the network maintenance the third-party operators will rely on.
- The governance structure of the Transnet National Ports Authority on incorporation, and its relationship to the operating divisions it serves.
- The appointment date of the current auditor and the dates of the predecessor engagement, which together set the Auditor Independence band.
- The irregular expenditure figure itself, now that the completeness of the reporting has been confirmed.
- The expansion share of the R129.1 billion programme, and what the R115.9 billion maintenance allocation is expected to return in capacity and availability.
The bottom line
Transnet moved more freight, ran its pipelines harder, got an unmodified audit opinion and can now report its irregular expenditure completely enough for the Auditor-General to confirm it. That is a better year than the group has had in some time, and none of it is diminished by what follows.
The profit is still not the evidence. Headline earnings, which exclude capital profits and losses, show a loss of R4.884 billion. The gain that turned the reported result around came from the terminal transaction, partly through the disposal and partly through remeasurement of the stake Transnet retained. Transnet kept 50.001% of the shares, and management control passed to ICTSI. At Pier 2, ownership and control have been separated.
That separation is not itself about to be copied wholesale. The ports authority is being incorporated as a wholly owned subsidiary and the rail arrangements are access agreements, and neither is an equity disposal that transfers control. What carries across is the pair of questions, not the structure: who holds the shares, and who makes the decisions. Pier 2 is the first completed case in which those have different answers, and it is the one the next arrangements will be read against.
The financial question, whether the operating business can cover its own cost base, gets its answer in twelve months. The governance question is being answered now, one transaction at a time, in documents that have not been published.
About the InsidEntity Company Risk Rating
The InsidEntity Company Risk Rating scores companies on a 1 to 5 scale, weighted 40% Director Independence and 20% each for Director Capacity, Auditor Independence and Shareholder Influence. Director Independence is carried at a default of 5.00 pending signed director questionnaires, and the composite is computed on equal 25% weights until that pillar is assessed. The same scale applies to individual pillar scores and to the published overall rating: 1.00 to 1.99 is Risk, 2.00 to 2.99 is Caution, 3.00 to 3.99 is Good, 4.00 to 4.99 is Excellent, and 5.00 is Benchmark. The Financial Stability Rating is a separate instrument measuring financial condition and is not combined with the CRR. Ratings update as corporate information changes. Explore ratings for companies across 145 stock exchanges at InsidEntity.
Independent research. Not financial advice. No allegation of wrongdoing is made against any individual named.
Know more. Risk less. Decide better.
Sources: Transnet SOC Ltd FY2026 results announcement, 10 September 2026; Auditor-General of South Africa audit opinion on Transnet SOC Ltd for the year ended 31 March 2026.
Note on figures: Figures are as reported in the results announcement and should be confirmed against the audited annual financial statements and integrated report for the year ended 31 March 2026 when published. The headline earnings loss of R4.884 billion is load-bearing for the financial argument in this piece and should be reconciled against the headline earnings reconciliation required under the JSE Listings Requirements before publication. The R3.6 billion fair value component of the R12.5 billion gain and the R5.3 billion carrying value of the retained stake are as reported and should be confirmed against the financial statements. The PFMA section 55(2)(b) exemption period and wording should be confirmed against Transnet’s own annual financial statements. The recognition of DGT as an associate is as stated in the results announcement. Pillar scores are as at the date of publication and update as corporate information changes.
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