RPT-Fitch revises outlook on PKP Intercity to stable; affirms PKP at 'BBB'
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Aug 28 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has revised the Outlook on PKP Intercity S.A.'s (PKP IC) Long-term foreign currency Issuer Default Rating (IDR) to Stable from Positive and affirmed it at 'BBB-'. The agency has also affirmed Polskie Koleje Panstwowe S.A.'s (PKP) Long-term foreign currency IDR at 'BBB' with a Stable Outlook. A full list of rating actions is at the end of this release.
The revision of PKP IC's Outlook to Stable reflects the agency's revision of the Outlook on Poland's Long-Term foreign and local currency IDRs to Stable from Positive on 23 August 2013 (see "Fitch Revises Poland's Outlook to Stable; Affirms at 'A-'" at www.fitchratings.com).
KEY RATING DRIVERS
PKP IC's Rating Linkage with the State
Fitch assesses PKP IC's ratings at three notches below the country's Long-Term foreign and local currency IDRs (A-/Stable and A/Stable) due to its strong legal links with the state, and the state's involvement as the company's majority shareholder in PKP IC's financial and operational functions. PKP IC's standalone profile is commensurate with the 'B' rating category.
The state owns a 65.7% stake in PKP IC. The remaining stake is owned by fully state-owned PKP. At end-2012, 36% of PKP IC's debt was guaranteed by the state. Fitch expects that the share of state-guaranteed debt will increase to well above 50% by end-2014 as the company plans to raise new state-guaranteed loans for its large capex.
PKP's Rating Linkage with the State
Fitch currently assesses PKP's ratings at two notches below Poland's Long-term foreign and local and currency IDRs, due to the strong legal links and the financial and operational involvement of the company's sole shareholder, the state treasury, in PKP's operations. PKP's Outlook remains Stable (for more details see "Fitch Revises Polskie Koleje Panstwowe Outlook to Stable; Affirms at 'BBB'" dated 12 August 2013 at www.fitchratings.com).
At end-2012, 71% of PKP's debt was guaranteed by the state treasury. Fitch assumes that the forecast decrease in guaranteed debt as a proportion of total debt would be mitigated by a lower overall debt level and hence possibly a stronger standalone credit profile, which may nevertheless remain in the 'B' category.
If PKP repays all maturing debt in the coming years (instead of debt refinancing), the share of state-guaranteed debt to total debt will decrease to below 20% in 2017. In a scenario of lower privatisation proceeds and debt refinancing with unguaranteed debt, the share of guaranteed debt may decrease even faster. Together with PKP's lowered strategic importance to the state, following the planned sale of stakes in several large subsidiaries, this would likely result in a change in Fitch's rating approach for PKP to bottom up from the current top down approach in the next three to five years and a likely downgrade of PKP's ratings.
Positive: Future developments that could lead to positive rating action include:
- An upgrade of Poland's sovereign rating.
- Improved cost recovery and remuneration under the PSC agreements.
- Stronger links with the state, for instance tangible support in the form of a large equity increase.
Negative: Future developments that could lead to negative rating action include:
- A downgrade of Poland's sovereign rating and/or evidence of reduced state support.
- A substantial increase in the share of PKP IC's unguaranteed debt.
- Failure to close the funding for the ETR 610 project in a timely manner.
- Failure to receive planned EU funds for any of the large capex projects, unless the company decides to cancel any of them.
Positive: Future developments that could lead to positive rating actions include:
Rating upside is limited due to the expected decrease in the share of state-guaranteed debt and the company's weak standalone profile.
Negative: Future developments that could lead to negative rating actions include:
-- A downgrade of Poland's sovereign ratings.
-- Evidence of weakened state support for PKP, chiefly a smaller share of government guaranteed debt, for example due to unguaranteed debt issue in order to refinance state guaranteed debt. A delay of privatisation proceeds or levels insufficient to repay maturing debt would increase the refinancing risk. The rating actions are as follows:
Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook revised to Stable from Positive
Long-term local currency IDR: affirmed at 'BBB'; Outlook revised to Stable from Positive
National Long-term rating: affirmed at 'A(pol)'; Outlook revised to Stable from Positive
Long-term foreign currency IDR: affirmed at 'BBB'; Stable Outlook
Long-term local currency IDR: affirmed at 'BBB+'; Stable Outlook
National Long-term rating: affirmed at 'A+(pol)'; Stable Outlook
Foreign currency senior unsecured rating: affirmed at 'BBB'