Prominent economist, professor in his field at the University of Cape Town, and investment strategist at Investec Wealth & Investment, Brian Kantor, will argue in favour of Transnet’s ongoing Durban High Court privatisation case against APM Terminals.
Kantor is expected to state that the state-owned company (SOC) acted correctly in allowing International Container Terminals Services (ICTSI) to use its market capitalisation to assess solvency during the bidding process for a 49% tender of Durban Container Terminal (DCT) Pier 2.
According to court documents filed at the Court and reviewed by BD Live, Kantor maintains that market capitalisation provides a valid indicator of solvency. He contends that a company’s capacity to meet its obligations hinges on the market value of its assets relative to its debts, and that share price reflects a firm’s overall value.
The use of market capitalisation is expected to be a key point of contention when ICTSI faces rival bidder APMT – the port operations arm of AP Moller-Maersk – in court next month.
Last October, Judge Robin Mossop issued an interdict highlighting significant concerns with Transnet’s procurement process, casting uncertainty over the state-owned logistics operator’s decision to select ICTSI for the 25-year DCT2 concession.
Central to the legal dispute is whether Transnet erred in permitting ICTSI to meet the solvency requirement through its market capitalisation, a move that increased the company’s solvency ratio from 0.24 to the required 0.4. Despite internal and external recommendations cautioning against this method, ICTSI was the sole bidder to adopt this approach, enabling it to pass the financial criteria with ease.
Kantor’s position aligns with that of Professor Warren Maroun from the University of the Witwatersrand, who has indicated that there is no universally accepted method for calculating solvency ratios. Maroun believes that market capitalisation can be a legitimate metric, reflecting an organisation’s capacity to attract capital or refinance its debts.
Conversely, APMT has appointed Harvey Wainer, a visiting professor at Wits and member of the JSE’s Issuer Regulation Advisory Committee, who argues that standard financial analysis does not typically consider market capitalisation as a measure of total equity for solvency purposes.
The DCT2 project is a critical component of South Africa’s infrastructure agenda, representing Transnet’s largest container terminal and processing 72% of Durban’s port throughput and nearly half of the nation’s total port traffic. The terminal’s infrastructure has seen little modernisation since 1963, with increasing congestion over the past two decades causing significant shipping delays.
ICTSI has asserted that APM’s challenge is self-serving, noting that the Danish operator had the opportunity to contest the use of market capitalisation when the shortlist was finalised in August 2022 but opted not to do so. ICTSI’s bid exceeded APM’s by R2 billion, and the company claims that the legal proceedings have caused considerable financial harm.
Following its designation as the preferred bidder in July 2023, ICTSI began preparing to pay the $618 million purchase price. The company argues that reserving capital for this investment has incurred substantial opportunity costs, preventing it from pursuing other projects. ICTSI estimates that a six-month delay due to the interdict could result in direct costs of R360m, excluding the broader financial repercussions of immobilised funds.
The company warns that continued delays risk stalling a vital infrastructure development. The DCT2 upgrade, it argues, is essential for addressing operational inefficiencies at the Port of Durban and is integral to bolstering South Africa’s economic growth.
