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July 7 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says in a newly-published report that its outlook for Australian transportation infrastructure is stable, supported primarily by continued traffic growth. However, exposure to medium-term bullet debt could leave issuers vulnerable to refinancing risk in the event of a significant downturn in the Australian economy or banking sector.
Underlying traffic levels have remained generally robust in 2014 continuing the trend of recent years. Sydney Airport’s May year-to-date traffic grew 2.5% over the prior year, somewhat lower than growth over the same period in 2013. Fitch expects strong overall traffic growth in its rated Australian road portfolio to continue through 2H 2014 following the completion of expansion works.
The performance of the road and airport assets in Fitch’s Australian portfolio are underpinned by their important economic roles: Sydney Airport is the principal origin and destination airport in Australia; the Eastern Distributor, Hills M2, M5 and Westlink M7 roads along with the Cross City Tunnel and the Lane Cove Tunnel form the bulk of Sydney’s orbital road network; and the Citylink road in Melbourne is an important connection into the city’s central business district. Robust traffic performance, combined with supportive pricing arrangements, has provided these companies with strong cash flow coverage.
Nonetheless, Australian transportation issuers have unusually high exposure to medium-term (three to five-year) domestic bullet bank debt compared with global peers. While cash flows should be able to support potentially higher debt costs in the future, the need for regular refinancing of these long life assets is a weakness relative to global peers and exposes these companies to the liquidity of the Australian banking sector.
Furthermore, the Australian economy has a high dependence on the commodities sector and its banking sector is heavily reliant on external debt funding. Should either of these sectors deteriorate substantially, this could leave the Australian transportation issuers exposed to reduced traffic levels or to difficulties refinancing maturing debt.
The report, 2014 Mid-Year Outlook: Australian Transportation, is available on www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings’ Report: 2014 Mid-Year Outlook: Australian Transportation