November 23, 2012 / 3:50 PM / in 5 years

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 

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

Additional information is available at 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

Applicable Criteria and
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