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TRANSPORTATION INFRASTRUCTURE
Publication Date:
Sept. 19, 2007
Issuer Credit Rating:
AA/Negative/A-1+
Primary Credit Analyst:
Ralf Etzelmueller,
Frankfurt,
(49) 69-33-999-123
Secondary Credit Analysts:
Eve Greb,
Frankfurt,
(49) 69-33-999-124
Amrit Gescher,
London,
(44) 20-7176-3733
86 ■ NOVEMBER 2007
DEUTSCHE BAHN AG
Rationale
The ratings on Germany-based integrated railway
and logistics company Deutsche Bahn AG (DB
AG) reflect the company’s strong business risk
profile derived from its dominant position and
strategic importance in the German transport
sector, as well as the close relationship with, and
support from, its current 100% owner, the
Federal Republic of Germany (AAA/Stable/A-1+).
DB AG’s strengths are offset by an intermediate
financial risk profile and uncertainties related to
the expected privatization of up to 49% of the
company’s capital.
Standard & Poor’s Ratings Services applies a
top-down rating approach for governmentsupported
companies, which notches down from
the sovereign rating, as the credit standing is
linked to that of the government. The ratings on
DB AG, which are two notches lower than those
on Germany, reflect the absence of direct state
guarantees for outstanding debt and that
timeliness of financial support for the company is
not explicitly guaranteed. Nevertheless, the state
has demonstrated its support for DB AG through
the full backing of its acquisitions and
investments in recent years, significant direct
grants for network investments, and indirect
payments through the regional states for services
provided by DB AG and its subsidiaries. Ministry
officials have also repeatedly given clear
statements to Standard & Poor’s that the state
will continue to support DB AG in its current
form and ensure that it maintains a sustainable
credit profile.
DB AG continues to provide essential railway
services within Germany, but its acquisitions,
mainly in the logistics sector, have transformed
the company into a worldwide integrated mobility
and logistics firm that in 2006 derived about 50%
of its revenues from non-railway services. State
support is therefore a key consideration for the
‘AA’ rating, as Standard & Poor’s assesses the
business risk profile of the logistics industry as
weaker than that of the railway business, and DB
AG’s current stand-alone financial risk profile is
not in line with an ‘AA’ rating.
DB AG’s first-half 2007 results were in line
with Standard & Poor’s expectations and boosted
by a strong performance across all business areas.
DB AG’s financial debt decreased by about
€600 million to €18.9 billion compared with the
end of December 2006 and its EBIT improved by
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
about €400 million to €1.35 billion. Standard &
Poor’s expects that DB AG’s key debt and interest
coverage ratios will improve further in 2007.
Moreover, we expect that the company will
continue to reduce leverage and improve its
financial risk profile over the medium term.
Short-term credit factors
DB AG’s liquidity remains strong, owing mainly
to its easy access to capital markets and a
comfortable cash position of €992 million at the
end of June 2007. In our view, DB AG should be
able to refinance upcoming maturities owing to its
very good access to the capital markets. In
addition, the company has sound liquidity
through committed bank facilities.
Outlook
The negative outlook reflects our concerns and
questions related to the expected partial
privatization that was approved by the German
government on July 24, 2007. Areas of
uncertainty are DB AG’s ability to continue
reducing leverage under a partial privatization,
whether it could come under pressure to make
dividend payments that are currently not part
of its financial forecasts, and whether it
would potentially adopt a more aggressive
acquisition strategy.
We will need to assess whether similar
government support will and can be provided for
the privatized entity. The service and financing
agreement currently being negotiated would
suggest consistent levels of financial commitment
for extended time periods. We would also need to
assess the company structure post privatization.
An important factor will also be how much of the
privatization proceeds will be used to improve the
company’s balance sheet.
After a minority privatization, we expect to
switch to a bottom-up rating approach, most
likely still factoring in state support, but reflecting
reduced government ownership in the business.
We would also adopt this approach if DB AG
made additional large acquisitions in the
meantime, similar to those of logistics companies
BAX Global and Stinnes AG, which would
further expose DB AG to logistics activities. The
latter could have negative rating implications, as
the business risk would increase because strategic
rail and infrastructure services would become
less relevant. ■