Autobahnen-und Schnellstrassen-Finanzierungs-AG

Transcription

1 Autobahnen-und Schnellstrassen-Finanzierungs-AG Primary Credit Analyst: Ludwig Heinz, Frankfurt (49) ; Secondary Contact: Stefan Keitel, Frankfurt ; Table Of Contents Major Rating Factors Rationale Outlook Government Support And GRE Methodology Impact Business Description Legal Status And Government Role Operations And Finances Financial Profile: Limited Scope For Discretionary Financial Policies Related Criteria Related Research AUGUST 14,

2 Autobahnen-und Schnellstrassen-Finanzierungs-AG Major Rating Factors Strengths: Almost certain likelihood of extraordinary government support. Practically all financial debt benefits from a timely, unconditional, and irrevocable guarantee. Critical role for the Austrian government as monopoly constructor and operator of the Austrian motorway and high-speed road network. Integral link with the Austrian government as a wholly owned subsidiary subject to a tight legal, planning, and control framework. Strategic importance and political consensus protecting the company from privatization. Issuer Credit Rating AA+/Stable/A-1+ Weaknesses: Rising debt burden over the forecast horizon. Strong dependence on sovereign support to preserve its monopoly position. Rationale The ratings on ASFINAG reflect our opinion that there is an almost certain likelihood that the Republic of Austria (AA+/Stable/A-1+) would provide timely and sufficient extraordinary support to ASFINAG in the event of financial distress. In accordance with our criteria for rating government-related entities (GREs), our view of an almost certain likelihood of extraordinary government support is based on our assessment of ASFINAG's: Critical role for Austria as its sole agent with a monopoly position as constructor and operator of the Austrian motorway and high-speed road network; and Integral link with the government as a wholly owned subsidiary of the government that is subject to a tight legal, planning, and control framework. In addition, the ratings reflect our assessment of the strong explicit government support provided through timely, unconditional, and irrevocable guarantees for ASFINAG's bond issues. Every year, the Austrian ministry of finance, in cooperation with ASFINAG, sets a maximum amount for refinancing and new issuance for ASFINAG that is explicitly guaranteed by the Austrian government. The respective amount is incorporated in the federal financing law and set conservatively, covering ASFINAG's financing needs very adequately. We consider that the Austrian government is willing to support ASFINAG, one of its key GREs, in practically all circumstances, and it has sufficient financial resources to do so. We think that the Austrian government generally has a strong propensity to support its GREs. ASFINAG is responsible for the financing, construction, maintenance, and operation of the entire Austrian network of AUGUST 14,

3 motorways and high-speed roads. Although the motorway network remains the property of Austria, ASFINAG has been granted the unlimited usufruct (the legal right to use and derive profit or benefit from property that belongs to another, as long as the property is not damaged) over the network. This entitles the company to the revenues generated from the road network, namely through tolls and usage fees, fines issued, and the operation of service areas. The government's support and control of ASFINAG are significant. The company is incorporated under the ASFINAG Law (AL), which states that the Austrian government is responsible for ensuring that ASFINAG has sufficient funds at all times to protect its liquidity and equity and pursue its agreed activities. The government, as the owner, exercises operational, management, and financial control over ASFINAG, and approves the company's budget. We do not think that the legal framework for ASFINAG and more broadly, the likelihood of support by the Austrian government, is subject to transition risk. ASFINAG's 12.0 billion euro medium-term note (EMTN) program, which is its main source of debt financing, has the benefit of a full, explicit, direct, unconditional, and irrevocable guarantee from the government. The program is usually extended annually (as part of Austria's budget law), including a predetermined drawdown amount. 1.3 billion of debt is due in October 2017, and we anticipate that ASFINAG will refinance the bulk of this upcoming maturity with issuance under its EMTN program and cover the remainder by drawing on its liquidity buffers. A guarantee amount of 1.6 billion is included in the Federal Financing Law for 2017 and the master guarantee for the EMTN program will be updated before the issuance in the third or fourth quarter. There is no debt maturing in 2018, giving the company greater flexibility in the modalities of this year's refinancing operations. Privatization of the company is not on the agenda, and would require a change in the AL. In the first half of 2015, the Austrian government reorganized some of its state holdings and formed a new holding structure. However, ASFINAG's legal structure was not changed after laborious discussions. Suggestions on how to re-group state holdings emerge from time to time in the political realm, but do not indicate any implications for ASFINAG's status as one of Austria's most important GREs. We therefore believe that a change in the company's setup currently seems both unlikely and unviable. This leads us to foresee a very low probability that ASFINAG's monopoly position would be challenged. In 2016, the company paid its usual 100 million in dividends to the Austrian government, and plans to continue doing so over the next few years, which fulfills the government's dividend expectations. We regard this as feasible given our forecast of continued profits at ASFINAG. However, we believe the reported results overstate the company's financial strength because the costs of motorway and high-speed road construction are accounted for as nondepreciable assets. We expect the company's cash flow before financing will be negative on average in , given high investments in new construction, refurbishment, and network maintenance. As such, we anticipate that ASFINAG will have to lean on debt to finance some of its investment expenditure in the coming years. We note that ASFINAG's debt issuance is eligible for the quantitative easing program that the European Central Bank implemented in March Revenues from tolls increased in all categories last year by a total of 3.2%, compared with the previous year, based on price adjustments and volume increases, indicating slight economic growth. The company bases its toll revenue AUGUST 14,

4 forecasts for 2017 on moderate price increases in the coming years and modest volume increases of 1% after 2017 for heavy vehicles, the most important toll source. We note that the tariff regulations approved by the ministry of transport since January 2017 are favorable for ASFINAG because they reduce the forecasts' uncertainty, given that environmental incentives are based on the external cost component instead of a discount by emission classes. The economic forecast is based on external projections by the Austrian Institute of Economic Research. Overall, ASFINAG's revenues are highly predictable, owing to moderate but continuous traffic growth over the cycle. ASFINAG posts high EBITDA margins of over 50% but continues to have high and rising debt associated with its infrastructure construction program. Furthermore, the company is constantly keeping its toll generation systems up to date, for example with the updated electronic toll generation system and the offer to purchase a digital vignette from Outlook The stable outlook on ASFINAG reflects that on Austria. Therefore, any rating action on the sovereign would result in a corresponding action on ASFINAG. The outlook also reflects our assessment that, given ASFINAG's strategic importance to the Austrian government, there will be no significant changes to extraordinary government support for the company, state guarantees, or the legal framework governing its operations. We also believe the company will maintain its monopoly position and that there is no risk of privatization. We could lower the ratings on ASFINAG if we concluded that the likelihood of support from the Austrian federal government had weakened. A change in laws, privatization plans, or the refusal of future guarantees could trigger such a reassessment of the company's role for and link with the government. However, we view these developments currently as unlikely, given the government's statements regarding keeping the company in its current form and structure. All else equal, we could raise the long-term rating if Austria's credit quality were to improve. Government Support And GRE Methodology Impact Under our criteria for GREs, our view of an almost certain likelihood of extraordinary government support is based on our assessment of ASFINAG's: Integral link with the government as a wholly owned government entity that is subject to a tight legal, planning, and control framework. Further, the Austrian government provides unconditional and irrevocable guarantees for the timely repayment of the company's bond issues and is generally inclined to intervene in favor of its GREs; and Critical role for Austria, owing to its quasi-monopoly position as constructor and operator of the country's motorways and high-speed road network. In this respect, ASFINAG provides highly visible key infrastructure and services for the Austrian government and economy. This combination of an integral link and critical role leads us to believe that Austria would provide timely and sufficient AUGUST 14,

5 extraordinary support to ASFINAG in the event of financial distress. Consequently, we consider extraordinary support to be almost certain. We currently consider that the Austrian government is willing to support ASFINAG, one of its key GREs, in practically all circumstances, and that it has sufficient financial resources to do so. We assess the government's propensity to support its GREs as not doubtful. Business Description ASFINAG is the government agency responsible for the financing, construction, maintenance, and operation of Austria's network of motorways and high-speed roads. The network totals about 2,199km, mainly motorways and various bridges, tunnels, and mountain passes on other roads. ASFINAG's main focus is currently the qualitative improvement of Austria's tunnels on behalf of the government, following EU requirements. We note that the expansion of the network was therefore somewhat limited over the past few years. Furthermore, the Austrian motorway network is already dense, but some further extensions--for example in the Vienna area--are crucial in the light of increasing traffic volumes. In 2017, ASFINAG is investing 1.2 billion in the motorway network, of which 530 million is for extensions to the network and second tunnel tubes; 470 million for the maintenance of existing roads and tunnels; and 200 million for modernizing the electronic tolling system for heavy vehicles. ASFINAG will also offer a digital vignette to complement its traditional toll stickers from 2018, underlining the company's efforts to maintain a modern system of toll collection, thereby protecting its revenue collection and reducing costs. Founded in 1982, ASFINAG is fully owned by Austria's federal government, as is required by the AL. It was reformed and given its present structure and function in According to contractual agreements, ASFINAG now has the unlimited usufruct over the motorway and high-speed road network. This entitles the company to the revenues generated from the road network, such as income from tolls or the operation of service areas. Austria remains the proprietor of the road network, however. ASFINAG constructs new roads, which may involve purchases of property, on the government's behalf. In exchange for the construction cost, ASFINAG receives the usufruct over newly constructed roads. ASFINAG's main source of revenue is tolls and usage fees, which are expected to finance the construction and maintenance of the road network for the long term. Even after the introduction of a toll on trucks in 2004, however, a sizable proportion of expenditure continues to be financed with debt. For vehicles weighing up to 3.5 metric tons, use of the road network requires the purchase of a toll sticker (or from 2018 on, the digital vignette), which can be bought for different durations and different classes of vehicle. For certain other sections--mainly bridges, tunnels, and mountain passes--motorists must pay individual usage fees. For vehicles exceeding 3.5 metric tons, a usage-based toll was introduced in 2004 and amended by a system reflecting ecological categories based on emission classes. This toll is levied electronically and the system will be updated in AUGUST 14,

6 Toll revenues accounted for 77% of ASFINAG's revenues in 2016, broadly similar to the previous years. Last year, toll revenue increased by 3.2% year-on-year. All toll categories (sticker revenues, special toll, and truck toll) increased in 2016 compared with the previous year, based on both price adjustments and volume increase, indicating some economic growth. The company bases its toll revenue forecasts for 2017 and beyond on further moderate increases of traffic volumes, especially for heavy vehicles, the main source of revenues. Price forecasts are relatively conservative in light of a potential slight pick-up in inflation in Overall, ASFINAG's revenues are highly predictable, owing to moderate but continuous traffic growth over the cycle. The company's ability to set prices is limited by political sensitivities. Heavy-truck tolls are politically less sensitive than fees for individual car stickers and therefore more flexible, but they are limited by the EU directive on charging heavy-goods vehicles. ASFINAG's reorganization in 2010 resulted in two operating service companies instead of the previous four. They are: ASFINAG Alpenstrassen GmbH (not rated), covering the states of Tyrol and Vorarlberg; and ASFINAG Service GmbH, which serves the remaining regions of Austria. These companies are responsible for the operational management of the road network and are headed by a joint management team. In addition, ASFINAG Bau Management GmbH takes care of all planning, construction, and maintenance activities, while ASFINAG Maut Service GmbH and ASFINAG European Toll Service GmbH manage tolls. ASFINAG Commercial Services GmbH--another limited liability company--is in charge of consulting and technology transfer. ASFINAG itself focuses on management, control of operations, and financing. Legal Status And Government Role ASFINAG is an incorporated company, as laid out by the AL. This status, together with the usufruct right contract (URC) signed by the company and the federal government in 1997 and valid as amended, determines the relationship and the rights and obligations of both parties. The AL establishes the federal government as the sole shareholder and defines the company's purpose as the financing, planning, construction, and maintenance of the Austrian network of motorways and high-speed roads. All changes to the AL require a parliamentary majority. The URC regulates ASFINAG's right to the revenues generated from the road network, particularly from tolls, and assigns to the company the obligation to plan, construct, and maintain the road network. The contract is of unlimited duration, and the government abstained from any cancellation rights in 2007, which were included in a previous contract. ASFINAG has the right to cancel the contract at the end of each year, should the government set tolls at a level the company considers unsustainable. If ASFINAG cancels the URC, the government would have to assume the liabilities resulting from ASFINAG's obligations as defined in the contract. The government plays a very dominant and directly supportive role in ASFINAG's operations. The majority of members on the company's supervisory board are appointed by the government, which also approves the company's budget. In addition, the company must provide quarterly debt-evolution reports to the Ministry of Finance. The government's role is not limited to management control and a right to information, however. The government directly controls large parts of ASFINAG's expenditure and revenue, and thereby also its profitability and ability to control its AUGUST 14,

7 debt. ASFINAG's construction expenditure is effectively controlled through the government's right to set targets for construction and safety measures. The construction volume decreased by about 5% to 907 million in 2016, mainly due to delays in larger-scale projects. Following cutbacks in the government's investment program following the recession in 2009, the absolute low in construction levels was achieved in 2011 with only 604 million spent. In order to meet EU directives on tunnel safety as well as national transport policy, construction will expand in and exceed 2008 levels, where a peak of 1,178 million was reached. For the period a total construction program of 7.8 billion is envisioned, with peak construction worth 1.4 billion occurring in The level of tolls and usage fees, although proposed by ASFINAG, is set by the government. This gives the government control over almost all ASFINAG's revenues. The government's strong support for ASFINAG's operations and creditworthiness is enshrined in article II, paragraph 10 of the AL. This states that the government is responsible for ensuring that ASFINAG has sufficient funds at all times to protect its liquidity and equity and pursue its activities as agreed with the government in its annual plans. This effectively constitutes an operational guarantee for the company. The government does not extend direct subsidies to ASFINAG and does not plan to do so, although it has that power. There are therefore two main channels for possible government support: setting tolls and usage fees so that revenues largely correspond to expenditures, and extending loans to the company. ASFINAG has regular access to short-term bridge financing from the Federal Financing Agency, which is authorized and willing to provide funds with short-term liquidity. In addition to the operational guarantee under the AL, ASFINAG also has the right to name the government as a guarantor--according to Article IV of the URC--to fulfill the company's obligations under the URC. The URC also requires a legal framework for such a guarantee. Austria's annual-budget law empowers the Minister of Finance to issue new guarantees in favor of ASFINAG's debt, which mainly comprise the 12 billion EMTN program. The guarantee--which is full, explicit, direct, unconditional, and irrevocable--is extended annually for a predetermined drawdown amount. We understand that privatization of ASFINAG, which would require a change to the AL, is not on the government's agenda and is not politically discussed in the current run-up to the October 2017 parliamentary elections. Taking into account the contractual and legal rights and obligations of both the government and ASFINAG, privatization seems economically and politically unfeasible. ASFINAG and the sovereign are closely linked, and we believe privatization would exacerbate the politically sensitive issue of usage fees. Nevertheless, if the privatization of ASFINAG were to become a stated government objective, we would immediately review the issuer credit ratings on ASFINAG, with potentially negative implications. In 2015, the Austrian government reorganized its state holdings and formed a new holding structure; however the legal structure of ASFINAG was not changed after political discussions. We therefore believe that a change in the company's setup seems both unlikely and unviable at present. If we were to change the issuer credit ratings on Asfinag, we could, however, continue to equalize our ratings on the company's debt issues under the guaranteed EMTN program with the ratings on Austria. AUGUST 14,

8 Similarly, the company's monopoly position is unlikely to be challenged, in our view. ASFINAG enjoys an unlimited usufruct on the existing network of motorways and high-speed roads, and only a negligible portion of the network is still to be constructed. Furthermore, Austria's long-term traffic plan clearly indicates that ASFINAG will carry out all projected construction work. Operations And Finances Given ASFINAG's status as a special-purpose entity, its business is restricted to the objectives of constructing, maintaining, operating, and financing Austria's network of motorways and high-speed roads. The company's main operational tasks, therefore, consist of closing gaps in and extending the motorway network. In particular, this consists of connections to international road networks in Central and Eastern Europe, reconstructing and maintaining existing roads, charging tolls and fees for using the network, increasing security on roads it manages, implementing and operating a traffic information system, and operating service and rest areas. The investment program agreed with the government for shows total investments of about 7.8 billion. According to the plan, investment activity should peak in The construction of new roads and expansion of existing routes is ASFINAG's largest expenditure item, and will remain so for the foreseeable future. Structural maintenance of the road network is closely related to new construction. Nevertheless, there are essential differences between the two. The government, and not ASFINAG, decides on new construction. This means ASFINAG is unable to adjust such expenditure levels, if necessary, to meet tighter spending targets. By contrast, ASFINAG is fully responsible for structural maintenance, although this item does not allow for much expenditure discretion. In addition, new construction increases the value of ASFINAG's usufruct, leading to an increase in balance-sheet assets, whereas structural maintenance does not. Nevertheless, structural maintenance expenses constitute an investment in maintaining the value of the motorway network. In addition, the usufruct's value on the balance sheet is not subject to depreciation. We therefore view structural maintenance spending as reinvestment that keeps the network from depreciating. Structural maintenance, the second largest operational expenditure item, has been roughly stable in recent years and is expected to increase moderately to about 490 million per year in Financial Profile: Limited Scope For Discretionary Financial Policies Given the legal and contractual provisions that govern ASFINAG's operations, expenditure, and revenue, the company's scope for discretionary financial policies is limited. Both the balance sheet and the profit-and-loss account are dominated by items relating to its usufruct. ASFINAG has presented its annual accounts based on International Financial Reporting Standards since The balance sheet totaled 16.2 billion in 2016 compared with 15.7 billion in 2015, and the single largest item was the usufruct, an intangible asset valued at 13.8 billion (see table 2). The usufruct's value is equivalent to ASFINAG's claims on the government for construction of the existing network in 1997 and annual construction costs since then (comprising the price ASFINAG pays the government for extending the usufruct to newly built roads). ASFINAG is not AUGUST 14,

9 allowed to depreciate the usufruct's value and new construction increases its value. Table 1 Autobahnen- und Schnellstrassen-Finanzierungs-Aktiengesellschaft Consolidated IFRS Balance Sheet --Year ended Dec (Mil. ) Total assets 16,197 15,650 15,217 14,814 14,446 14,337 14,233 13,159 12,470 11,932 Non-current assets 15,697 15,324 14,909 14,466 14,172 13,937 13,767 12,745 12,067 11,574 Of which usufructuary title 13,783 13,607 13,073 12,860 12,532 12,248 12,120 10,847 10,191 9,860 Of which down payment on usufruct , Current assets Of which cash and equivalents Equity 4,575 4,061 3,613 3,294 2,922 2,551 2,211 1,872 1,581 1,281 Liabilities 11,622 11,589 11,604 11,520 11,525 11,786 12,022 11,287 10,889 10,651 IFRS--International Financial Reporting Standards. The company's second-largest group of assets, primarily buildings and technical equipment, totaled 519 million in Cash and equivalents stood at 179 million at year-end 2016, up from 17 million in ASFINAG has no explicit liquidity policy. However, the government has provided contractual guarantees for the company's liquidity, and ASFINAG has ready access to short-term financing from banks and may receive funds from the Austrian Federal Financing Agency. ASFINAG's financial debt amounted to 10.7 billion as of year-end 2016, about level with Most of ASFINAG's liabilities consist of government-guaranteed bonds, totaling 8.8 billion as of Dec. 31, 2016, which is the same as the previous year. ASFINAG has an upcoming debt maturity of 1.3 billion in October We anticipate that the company will refinance the lion's share of the upcoming maturity with issuance under its EMTN program and cover the remainder by drawing down on its liquidity buffers, or through private placements with banks. A guarantee amount of 1.6 billion is included in the Federal Financing Law for 2017 and the master guarantee for the EMTN program has been updated in 2017, ahead of the issuance in early fall. There is no debt maturing in 2018, giving the company greater flexibility in the modalities of this year's refinancing operations. ASFINAG has no open foreign currency risks on its balance sheet, as foreign debt issuances are hedged with swaps. In 2016, EBIT was 1,144 million, relatively constant to the year before, and ASFINAG expects a slight but steady decrease in This is a reflection of increased expenditures despite the upward trend in toll revenues, which tend to be predictable due to continuous toll fee increases and steady traffic growth. ASFINAG forecasts a gradual increase in toll revenues over the next several years, which in our opinion appears reasonable. Expenditure on the construction of new roads creates an asset, the usufruct, but there is no corresponding depreciation AUGUST 14,

10 entry. ASFINAG's reported profits therefore appear higher than if construction costs were treated as a regular asset and subject to depreciation. Additional usufructs reflecting new road-construction costs equivalently increase the company's balance-sheet assets. The income statement therefore records primarily maintenance expenditures and toll revenues (see table 3). In this respect, the income statement understates the company's continued need for debt financing. Table 2 Autobahnen- und Schnellstrassen-Finanzierungs-Aktiengesellschaft Consolidated IFRS Income Statement (Mil. ) Revenues 2,494 2,422 2,354 2,166 2,078 1,871 2,472 2,036 2,011 1,975 Of which revenues from invoicing to Republic of Austria Of which sticker revenues Of which special toll revenues Of which truck toll revenues 1,274 1,253 1,242 1,135 1,103 1,062 1, , Of which section control service Of which from rent/lease Other revenues Operating expenses (1,280) (1,278) (1,239) (1,054) (980) (871) (1,640) (1,271) (1,083) (728) Of which expenses for raw materials, consumables and services (918) (925) (912) (730) (674) (548) (1,318) (941) (756) (384) Of which personnel expenses (188) (180) (175) (171) (167) (162) (161) (152) (147) (146) EBIDTA 1,214 1,145 1,115 1,112 1,096 1, ,004 1,334 Depreciation and amortization (70) (68) (63) (62) (63) (73) (86) (75) (72) (64) EBIT 1,144 1,076 1,052 1,053 1,032 1, ,270 Financial result (326) (348) (360) (424) (405) (444) (411) (393) (490) (408) Profit for the period IFRS--International Financial Reporting Standards. ASFINAG forecasts its cash flows from operating activities to exceed 710 million in 2017 and increase to over 740 million in 2018, and gradually decline thereafter. Because of the road construction activities, cash flows from investing remain highly negative, and in , cash flows from operating activities are expected to be insufficient to cover investing activities. Cash flows from financing activities depend on the company's bond issuances and can be positive or negative. However, we do not foresee major concerns regarding financing opportunities. We expect that the company will have to revert to debt financing in the foreseeable future due to the investment program and in order to refinance maturities under its EMTN program. Table 3 Autobahnen- und Schnellstrassen-Finanzierungs-Aktiengesellschaft Consolidated IFRS Cash Flow Statement (Mil. ) Cash flow from operating activities AUGUST 14,

11 Table 3 Autobahnen- und Schnellstrassen-Finanzierungs-Aktiengesellschaft Consolidated IFRS Cash Flow Statement (cont.) (Mil. ) Cash flow from investing activities Cash flow from financing activities. Cash and equivalents at year-end IFRS--International Financial Reporting Standards. (404) (470) (451) (382) (346) (351) (419) (449) (591) (550) (196) (90) (183) (140) (166) (297) Related Criteria General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015 General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009 Related Research Republic of Austria 'AA+/A-1+' Ratings Affirmed; Outlook Stable, March 17, 2017 Austrian Road Operator Autobahnen-und Schnellstrassen-Finanzierungs-AG 'AA+/A-1+' Ratings Affirmed; Outlook Stable, July 14, 2017 Ratings Detail (As Of August 14, 2017) Autobahnen-und Schnellstrassen-Finanzierungs-AG Issuer Credit Rating Senior Unsecured Issuer Credit Ratings History 30-Jan Jan Dec-2011 AA+/Stable/A-1+ AA+ AA+/Stable/A-1+ AA+/Negative/A-1+ AAA/Watch Neg/A-1+ *Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings credit ratings on the global scale are comparable across countries. S&P Global Ratings credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees. Additional Contact: SovereignEurope; SovereignEurope@spglobal.com AUGUST 14,

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