European Infrastructure Finance Yearbook - Investing In Bonds ...

TRANSPORTATION INFRASTRUCTURE
Publication Date:
June 11, 2007
Issuer Credit Rating:
BBB+/Negative/A-2
Primary Credit Analyst:
Alexandre de Lestrange,
Paris,
(33) 1-4420-7316
Secondary Credit Analyst:
Hugues De La Presle,
Paris,
(33) 1-4420-6666
90 ■ NOVEMBER 2007
VINCI S.A.
Rationale
The ratings on VINCI S.A. reflect its strong
market positions in a wide variety of concession
and construction activities, and the considerable
contribution from its stable and profitable
concession businesses--59% of pro forma
operating profit from ordinary activities in 2006.
These strengths are mitigated by the capitalintensive
nature of the concessions business, high
leverage, the cyclical and relatively lower margin
nature of construction activities, and VINCI’s
acquisitive strategy.
At the beginning of 2007, VINCI increased its
stake in Cofiroute, and is to do so in Soletanche
(subject to approval by antitrust authorities). It
acquired Nukem Ltd. and recently announced
that it had agreed the acquisition of 41% of
Entrepose Contracting and will file a takeover bid
covering the remaining Entrepose Contracting
shares within the next few days. Standard &
Poor’s Ratings Services will monitor the impact of
VINCI’s flow of acquisitions on the group’s
business and financial risk profiles. The current
ratings do not provide flexibility for any new
large debt-financed acquisitions.
Overall, we view the recent acquisitions as
positive for VINCI’s business, even though they
have increased leverage and pay-off for the
Cofiroute stake will only come when Cofiroute
completes its large construction program in 2008.
Given that VINCI had ownership in or
commercial involvement with these entities prior
to the transactions, acquisition risk is limited.
Nukem Ltd. and Entrepose Contracting will
complement VINCI’s presence in value-added and
specialty businesses, while broadening geographic
coverage in rapidly growing markets.
The share buyback of 12 million of VINCI
shares announced in September 2006 (to the tune
of more than €1 billion) has been factored into
the ratings. However, our concerns on how
VINCI intends to finance further buybacks and
over its appetite for further external growth
contribute to the negative outlook on the group.
VINCI has, however, announced to investors that
it will be less active on the share buyback front if
interesting external growth opportunities arise.
Acquisitions have delayed the improvement of
the group’s financial profile and VINCI’s credit
ratios will weaken slightly in 2007 versus 2006,
despite an expected strong operating performance.
However, we still expect the company to achieve
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
a financial profile commensurate with the ‘BBB+’
rating, strengthening funds from operations (FFO)
to net debt and FFO to net interest to about 20%
and 5.0x by 2010, respectively, from 15% and
about 4.5x in 2007. At year-end 2006 and on a
pro forma basis, adjusted FFO to net debt was
about 16%, and adjusted FFO to net interest
close to 5.0x.
Short-term credit factors
The ‘A-2’ short-term rating reflects VINCI’s good
liquidity, which stems from the group’s cashgenerative
toll road and construction businesses.
Liquidity was supported by about € 5.5 billion of
cash and marketable securities at March 31 2007.
VINCI also had € 5.7 billion fully available under
five- to seven-year revolving credit facilities (out
of which € 3.9 billion is not subject to financial
covenants) maturing between 2011 and 2013.
This figure includes ASF’s and Cofiroute’s
facilities. In addition, VINCI’s liquidity benefits
from a CP program--of which about € 1 billion
was used at March 31, 2007--and positive free
cash flow generation.
A downgrade or negative CreditWatch
placement of the ratings on VINCI following a
winding up or dissolution of the company would
allow bondholders to demand early redemption of
the € 1 billion bonds maturing 2009, and in
this case refinancing would be required. A normal
acquisition would not trigger early redemption,
however.
Early redemption of the € 1 billion bonds could
also be required if VINCI is placed on
CreditWatch negative following the transfer of a
principal subsidiary’s undertakings and assets.
Principal subsidiary refers to a 51%-owned (85%
for Cofiroute) subsidiary accounting for more
than 1% of total sales, where the group has a
board majority. We do not, however, expect any
transfer of assets that would lead to early
redemption of the bonds.
VINCI’s € 500 million hybrid issued in
February 2006 does not include a change of
control clause.
Outlook
The negative outlook reflects our concerns that
debt-financed acquisitions and share buybacks
further to those we have already factored into the
ratings could weaken VINCI’s financial profile
and delay the achievement of target ratios.