Fitch Rates ADIF - Alta Velocidad 'BBB'; Outlook Stable

Wed Mar 26, 2014 2:48pm EDT

(The following statement was released by the rating agency) BARCELONA/PARIS/LONDON, March 26 (Fitch) Fitch Ratings has assigned ADIF - Alta Velocidad (ADIF AV) Long-term foreign and local currency Issuer Default Ratings (IDR) of 'BBB' and Short-term foreign and local currency IDRs of 'F2'. The Outlook on the Long-term IDRs is Stable. ADIF AV was created at end-December 2013 through Royal Decree 15/2013 following the segregation of the previous ADIF (rated BBB/F2/Stable) into two public entities (See 'Fitch: ADIF Split Neutral on Credit Profile' published 19 December 2013). The existing ADIF remains responsible for the conventional rail network in Spain and receives state subsidies, while ADIF AV is responsible for the maintenance and expansion of the high speed rail network and receives fees from railway operators. ADIF AV's ratings are equalised with those of Spain's (BBB/Stable/F2), reflecting the entity's public sector legal status and strong operational and strategic ties with the government. As a result, there is a high likelihood of extraordinary government support, if needed. ADIF AV is therefore classified as a dependent public sector entity under Fitch's criteria. KEY RATING DRIVERS Special Legal Status ADIF AV was created as a public entity corporation, reporting directly to the Ministry of Public Works. The state appoints members of the entity's Board of Directors and its President. While ADIF AV does not have an explicit guarantee from the state, it cannot go bankrupt and, if dissolved, its assets and liabilities would revert to the state. ADIF AV also cannot be privatised without a change in its legal status. Tight Control by Government ADIF AV's budget, including debt, is approved by the Spanish parliament at the same time as the central government's budget is tabled. In addition, all debt contracted with non-Spanish residents or bond issuance requires prior authorisation by the treasury. The state-appointed auditor also audits the accounts of ADIF AV. Funding from Central Government The Ministry of Public Works has mandated ADIF AV a large investment plan as it expands the high speed rail infrastructure in Spain. Presently the high speed network covers around 3,000 km and a further 2,000 km are in the construction and planning stage. Capital expenditure for 2014-2018 is projected to amount to EUR11.9bn, 55% of which is to be funded by debt. Weak Financial Profile Although ADIF AV is projected to incur losses in the near term from a large depreciation charge, it is forecast to have positive EBIDTA margins, averaging 27%, for the 2014-2018 period. Overall deficit will be partly compensated by state capital injections projected at EUR3.5bn for the 2014-2018 period. Stabilising Debt Levels ADIF AV was transferred EUR11.6bn in debt after creation, representing 95% of the total debt of the original ADIF. Seventy-five per cent of the debt is with European Investment Bank. Although there are some significant debt repayments in 2014, ADIF AV expects to refinance this and is looking at various options including a bond issue. Despite an ambitious capital expenditure programme debt growth will be moderate as part of the capital expenditure will be co-funded by EU funds. Debt is projected to increase to EUR15.5bn by end-2016. RATING SENSITIVITIES Rating changes to the sovereign will be reflected in ADIF AV. A downgrade could also follow if there is a change in the status of ADIF AV or in Fitch's assessment of extraordinary support from the state. In addition, a downgrade could result if there is insufficient funding from the state by way of capital injections or subsidies, resulting in a depletion of reserves. Contact: Primary Analyst Guilhem Costes Senior Director +34 93 323 8410 Fitch Ratings Espana. S.A.U. Paseo de Gracia, 85 08008 Barcelona Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8407 Committee Chairperson Christophe Parisot Managing Director + 33 144299134 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria 'Tax-Supported Rating Criteria' dated 14 August 2012 and 'Rating of Public Sector Entities Outside the United States' dated 4 march 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here Rating of Public Sector Entities - Outside the United States here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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