European Infrastructure Finance Yearbook - Investing In Bonds ...

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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. ■
Publication Date: June 13, 2007 Issuer Credit Rating: A+/Stable/A-1 Primary Credit Analyst: Jonathan Manley, London, (44) 20-7176-3952 Secondary Credit Analysts: Florian De Chaisemartin, London, (44) 20-7176-3760 DP WORLD LTD. Rationale The ratings on Dubai-based port operator DP World Ltd. principally reflect Standard & Poor’s Ratings Services’ expectation of sovereign support based on the company’s indirect ownership by the government of Dubai and its pivotal role in diversifying the emirate’s revenues away from oil and fostering international expansion. DP World is a major international port operator and its key activities in Dubai benefit from a strong hub position. DP World also has geographic diversification after recent large international acquisitions. Like other port operators, DP World is exposed to the global economy and developing international trade streams, particularly to and from China and India. The company is also likely to face heightened port competition for transshipment along with increasing consolidation in the shipping industry. Given DP World’s national importance, Standard & Poor’s has factored implicit sovereign support into the rating; there are, however, no formal guarantees. State support for DP World is demonstrated by: the emirate’s 100% ownership through its Dubai World holding company; the emirate’s direct influence over the company through Dubai World’s representation on DP World’s board, including the position of chairman; the company’s strategic importance as a conduit for diversifying the economy of the emirate away from oil; and the previous tangible financial, operational, and extraordinary support for the company’s activities. The company’s standalone rating is solid investment grade within the ‘BBB’ rating category. DP World benefits from a strong position in the global ports sector, where barriers to entry are high. The company has a highly diversified revenue base in terms of location and cargo, significant sector experience, and a good operating track record. DP World is not an integrated business, however, in that it is not, at present, a landlord. Within this context the emirate has demonstrated its support of DP World by awarding the company a 99-year lease for the Jebel Ali port facility located in Dubai-against an industry norm of 20-50 years--while making significant infrastructure investments in the hinterland surrounding the port. Reflecting the importance of the company to the emirate, Standard & Poor’s expects a significant STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK TRANSPORTATION INFRASTRUCTURE proportion of the company’s EBITDA to continue to be generated at the Jebel Ali and Port Rashid facilities in the medium term. Port activity is either as a transshipment hub or for the import and export of goods for a region or hinterland. The more a port relies on transshipment, the more it is exposed to world trade development. The port sector, like shipping, is experiencing very brisk business due to the current positive economic climate and, especially, China’s and India’s growth. Clearly, DP World’s ports--like other ports--would be negatively affected in the event of a global economic downturn or changes in trade patterns and/or volumes. A potential industry downturn could be exacerbated by increasing bargaining power, due to size, mounting concentration of container shipping companies, and intensifying competition between ports for transshipment cargo. Furthermore, the company faces the potential geopolitical risk of the location of its main port asset--Jebel Ali--in the Gulf region. DP World’s recent, sizable acquisitions include Peninsular & Oriental Steam Navigation Co. (P&O) and CSX World Terminals. The company has consequently faced the challenge of integrating these assets while maintaining existing performance and deriving expected returns from the new acquisitions. Furthermore, although the company may have some degree of flexibility over its future capital expenditure program, it needs to maintain its competitive position against other operators by investing in new technology and undertaking new projects, such as the recently announced £1.5 billion investment in the complex London Gateway Port facility. The company has a relatively aggressive financial profile. Debt leverage is likely to increase, primarily as a result of the debt financing of capital expenditures. At the same time, cash flow cover ratios are relatively low, leaving limited room for underperformance in executing future capital investment. There may be flexibility to postpone or cancel planned capital expenditures, however, should the need arise. Liquidity At Dec. 31, 2006, DP World benefited from more than $2.2 billion in back-up liquidity, primarily through free cash of $1.7 billion. The company’s future primary liquidity will, however, be provided via credit facilities of $0.5 billion. In NOVEMBER 2007 ■ 87
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November 2007 Infrastructure Financ
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CONTENTS Introduction STANDARD & PO
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INTRODUCTION 2007: New Challenges A
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ject Finance Rating Distribution: I
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COMMENTARY Publication Date: Sept.
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(Bil. ) 140 120 100 80 60 40 20 0 F
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UTILITIES EUROPEAN UTILITIES Once a
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UTILITIES approach to ownership unb
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UTILITIES 16 ■ NOVEMBER 2007 tran
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UTILITIES 18 ■ NOVEMBER 2007 Limi
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Publication Date: osenergoatom (sta
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UTILITIES 24 ■ NOVEMBER 2007 Tabl
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RATINGS LIST RATINGS LIST Utilities
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RATINGS LIST Transportation Infrast
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RATINGS LIST Project Finance Name I
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CONTACTS KEY ANALYTICAL CONTACTS Fr
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ARGENTINA AUSTRALIA BRAZIL CANADA C
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