TEXT-Fitch puts SNCF, and RFF ratings watch negative
Nov 23 - Fitch Ratings has placed Societe Nationale des Chemins de fer Francais (SNCF) and Reseau Ferre de France (RFF) 'AAA' Long-term Issuer Default Ratings (IDR) and senior unsecured ratings and 'F1+' Short-term IDRs on Rating Watch Negative (RWN). The RWN reflects uncertainty surrounding the timeframe for the implementation of the recently envisaged reform of the French railway sector and over the impact this reform may have on SNCF and RFF structures, notably on their legal form. Fitch will conduct a further review to clarify to what extent this would affect SNCF and RFF. The rating action follows the French government's announcement, on 30 October 2012, that it aims to create a "unified infrastructure manager" that will cover the infrastructure divisions of SNCF and RFF, the French rail infrastructure manager. Fitch will resolve the RWN once the agency has obtained additional information about the extent and scope of this reform. Fitch acknowledges that negotiations are ongoing but this reform should be presented as a bill to the French Parliament at the end of H113. If the legislation is delayed and no other source of resolution is available, the RWN could be prolonged. Fitch understands that the status of the future unified infrastructure manager is likely to be that of an Etablissement public a caractere industriel et commercial (EPIC) hence it has affirmed both entities' 'AAA'/'F1+' ratings. However, if the reform translates into a change of the status of SNCF and/or RFF involving weaker support from the state or a significant weakening of the links between the state and either of the two entities, the agency may remove the ratings equalisation of SNCF, RFF or both of them with that of the French sovereign. If the status was likely to change, the entities' underlying financial strength could become their main rating factor. As was already the case before the announcement of the reform, a negative rating action could also result from a downgrade of France's sovereign rating, due to the existing equalisation of the sovereign rating and SNCF and RFF's ratings. Moreover, in the case of SNCF, Fitch will pay particular attention on the likelihood SNCF may ask for state liquidity support in the context of increasing debt of its subsidiaries operating in deregulated markets and also in the context of reduction of the buffer of available cash resources through the existing receivable held at Caisse de la Dette Publique receivable, which will have significantly amortised after 2014. Even if SNCF maintains its EPIC status after restructuring the timely state support that Fitch would expect could theoretically be challenged. Extraordinary liquidity support to SNCF could be classed as unlawful state aid under EU regulations if it was used to support competitive businesses while the liquidity buffer through the acceleration of the payments related to EUR3.7bn receivable held at Caisse de la Dette Publique will be exhausted over the medium term. SNCF has also adapted its funding policy so that it will not be in breach of EU regulations on state aid as debt raised at the EPIC level for competitive businesses within the SNCF group is charged at market price to these businesses, therefore reducing the concerns about state aid issues. Bank liquidity lines provide comfort that funding needs over the medium term will be absorbed/met/tackled. SNCF had sound 7.2% growth in consolidated revenue in 2011 due to a slight recovery in freight and international passenger traffic and to the full consolidation of the Keolis subsidiary into its revenue. At end-2011, SNCF posted final net profit of EUR125m, down from EUR627m in 2010, mainly due to asset depreciation. Net debt/operating EBITDAR was 5.0x in 2011 (2010: 7.0x). Fitch will carefully monitor development of the group's debt share from competitive activities. A full rating report on SNCF will shortly be available on www.fitchratings.com. Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria "Tax Supported Rating Criteria" dated 14 August 2012 and "Ratings of Public-Sector Entities, Outside the United States" dated 5 March 2012, are available on www.fitchratings.com. Applicable Criteria and
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