(Repeat for additional subscribers)
May 16 (The following statement was released by the rating agency)
Fitch Ratings has revised Ferrovie dello
Stato Italiane's (FS) Outlook to Stable from Negative, while affirming the
Long-term Issuer Default Rating at 'BBB+'. Its EUR4.5bn euro medium-term note
programme (EMTN) and bond issues (XS1004118904 and XS0954248729) were affirmed
KEY RATING DRIVERS
FS's Outlook change follows a similar action on Italy's sovereign ratings (see
Fitch Revises Italy's Outlook to Stable, Affirms at 'BBB+' dated 25 April 2014
at www.fitchratings.com) as per the agency's 'Rating of Public Sector Entities
Outside the United States' criteria. The ratings reflect FS's full ownership by
and high integration with the Italian government as well as its key role in the
national infrastructure development.
The ratings also consider FS's strong standalone profile, underpinned by a 80%
market share in national passenger transportation rail and by its growing,
albeit modest, exposure to international activities and cyclical freight. FS
continues to perform broadly in line with Fitch's expectations; operating
revenues are forecast by the agency to grow about 1% per annum over the medium
term to EUR8.5bn by 2015 and the EBITDA margin hovering around 22%.
According to preliminary data for 2013 FS recorded a net profit of EUR460m at
the group level, almost 3x as much as Fitch's expectations. However, public
spending cuts by the national government for 2014-2016 may compress
profitability towards Fitch's baseline scenario of about EUR200m over the medium
term. FS's consolidated debt in 2013, on a Fitch-adjusted basis including about
EUR200m derivatives, stood at EUR11.8bn, in line with the agency's expectations.
Net debt/EBITDA was 5x against Fitch's projections of about 6x for the 2013-2015
FS's 2014-2017 business plan envisages EUR24bn of capital spending to upgrade
the network and rolling stock, with total debt stabilising at 2013 levels. Under
Fitch's base case scenario weaker performance, higher debt-funded investments
and an eventual adverse ruling for a possible state-aid controversy would push
gross debt towards EUR14bn. However, Fitch's calculated leverage for this period
would remain at 5x when net of projected liquidity reserves and state-subsidised
borrowing, thereby keeping the ratio in line with the average for 'BBB' rating
category on a standalone basis.
The group retains strong linkages with the national government, which guarantees
or subsidises roughly 50% of FS's debt, funds about 50% of FS's investments and
50% of its operations. Fitch considers it positive that FS's treasury and cash
pooling system are centralised at the FS SpA level, the group's holding company
and issuer of the bonds under the upcoming EMTN programme. Government transfers
are paid into a deposit account held with Bank of Italy and FS has to submit a
monthly report. The monthly report contains forecasts and is instrumental to
maintaining adequate liquidity, which is usually kept above EUR1bn.
FS's ratings and Outlook will continue to mirror those of Italy in light of
their credit linkage. Weaker sovereign links or a dilution of government
financial support, leading to a higher-than-expected growth of the group's debt
or a material shrinkage of liquidity cushion would be negative for the ratings.
The unbundling of the group via separation of its infrastructure network Rete
Ferroviaria Italiana without compensation for the loss of revenue stability
would also be rating-negative.