Fitch Ratings says its Rating Outlook for EMEA transport infrastructure in 2H14 is Stable, underpinned by improvements in traffic performance and slightly better economic prospects, including in Portugal, Spain and Italy. The Stable Outlook applies to 76% of the portfolio.
“The stabilisation of the outlook across the whole portfolio is driven by signs of improvement in traffic performance, which are now visible in economies that had been weak until recently,” says Nicolas Painvin, Head of Transport Infrastructure team in Fitch’s Global Infrastructure Group in EMEA. “However, the improvement remains insufficient, and the economy is not robust enough, to warrant any positive rating action.”
Many of the assets that had been exposed to weakened economies (e.g. Portugal, Spain, Italy) are now experiencing modest recovery.
Fitch’s rating case (which allows for some downside to its base case) is based on a prudent forecast of all the main credit drivers, some of which may be sensitive to macro developments, e.g. volume, price, opex, capex, and cost of debt. Our traffic growth expectations reflect the progressive exit of European economies from the global economic crisis and their return to a more normal economic cycle. However Fitch’s forecasts remain prudent and most ratings would remain unchanged should the recovery remain slow in the next quarters.
Owners of infrastructure assets with corporate-type financing have used favourable market conditions (liquidity, risk appetite and cheap funding costs) to lock in cheaper debt at refinancing, sometimes well in advance of maturities.
Traffic decline on large European toll road networks has given way to a mild recovery and Fitch expects the stabilisation trend to continue for the rest of the year. Fitch base-case assumptions, however, remain conservative as the European economy remains fragile, especially in southern Europe. Inflation is slowing as a result of austerity measures and this should also weigh on concessionaires revenue growth in 2014-2015.
Air traffic is regaining momentum. Fitch’s base case assumes that passenger air travel will grow steadily in 2014. Fitch’s rating case, meanwhile, takes a more conservative view and incorporates shorter-term moderation in traffic, followed by stronger growth over the longer term. All Fitch-rated European airports continue to have Stable Outlooks.
Fuel prices are still at historically high levels. Even though oil prices have fallen since March 2012, Fitch expects oil prices to remain at around USD100 a barrel until 2015. The effect on road, air and sea traffic is significant and will hamper a clear rebound.
Exposure to low inflation, if sustained, may weigh on ratings. An extended period of low general inflation is not included in Fitch’s rating cases. Such a scenario would likely have a disproportionately adverse impact on revenues compared with related operating cost savings. Sustained low inflation is currently not Fitch’s central assumption. Were this to change, a change of Outlook could follow.
A return to sustained growth, combined with an improved economic and financing background, would justify a Positive Outlook for the transport infrastructure sector. However, this is not Fitch’s central scenario.
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