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Fitch Affirms ACSA at 'BBB'/'AA-(zaf)'; Outlook Stable - AIR01, AIR02, AIR03 and AIRL01
Airports Company of South Africa SOC Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/004149/06)
JSE Code: BIACSA
(“ACSA”)
Fitch Affirms ACSA at 'BBB'/'AA-(zaf)'; Outlook Stable Ratings
Endorsement Policy
Fitch Ratings-London-24 November 2014: Fitch Ratings has
affirmed ACSA’s Long-Term local currency Issuer Default Rating
(IDR) at 'BBB' and its National Long-term rating and domestic
medium term note (DMTN) programme rating at 'AA-(zaf)'. The
Outlooks are Stable. The National Short-term rating has been
affirmed at 'F1+(zaf)'.
Fitch expects ACSA's financial performance to remain stable
over the next few years, based on its ability to recoup
previous capital expenditure with regulatory tariff increases.
Recent deleveraging should be sustained in the short term
despite a drop in traffic. However, increased capex
projections together with continued economic uncertainty in
the domestic aviation market and the regulatory regime are
likely to cause leverage to increase above the targeted 3x by
2018-2020 in the Fitch Rating Case (FRC). This constrains
ACSA's ratings despite recent deleveraging, and is reflected
by the Stable Outlook.
KEY RATING DRIVERS
Volume Risk - Midrange: ACSA shows strong intrinsic
attributes, albeit somewhat hampered by the volatility of an
emerging economy. ACSA is a nationwide airport system and
benefits from a virtual monopoly in South Africa, with a
diversified range of airports, clienteles and traffic types.
The peak-to-trough traffic decline between 2008 and 2010 was
9.8%. However, South Africa is prone to volatile economic
developments, as observed with airline bankruptcies in 2012,
and a related drop in domestic traffic (-4.6% departing
domestic pax year-on-year between 2012 and 2013). We therefore
judge resistance to be 'Midrange'.
Price Risk - Midrange: The relatively unfavourable framework
of economic regulation, where aeronautical charges only apply
to investments when they become operational, has led to a
large debt burden in the past.
Fitch continues to assume that the current system will remain
in place. The risk attribute is assessed as 'Midrange'.
Infrastructure Development/Renewal - Stronger: ACSA engaged in
a significant expansion of its airport system due to the
traffic growth prospects and the organisation of the FIFA
world cup in 2010. About ZAR17bn (EUR1.24bn) was invested
between 2005 and 2010. The assets are thus relatively new,
with a high economic life. Capacity expansion plans are
flexible and can be reduced or increased depending on
passenger growth, evidenced by the under spending in 2011-
2014. The next significant capacity expansion is not expected
to take place until after 2020. The attribute remains
'Stronger'.
Debt Structure - Midrange: ACSA is a corporate and issues
unsecured debt, in the form of listed domestic bonds, bank
debt and loans from development finance institutions. Although
there is little protection for creditors in the form of
covenants or reserves, the conservative debt management with
good access to local capital markets, well-spread debt
maturities and the improved liquidity suggest a 'Midrange'
risk attribute.
Financial Metrics: Leverage has quickly reduced but is
projected to increase again, albeit to lower levels. The large
capex effort sustained until 2010 coupled with the recession
in 2008-2009 and the adverse features of the regulatory system
led to high leverage (over 6x) in 2009-2011. As the recently
completed assets are yielding revenues through higher tariffs
and commercial revenues (retail and parking), some debt has
been repaid ahead of maturity. Consequently, leverage has
dropped at a faster pace than anticipated, with current
debt/EBITDA at 2.3x vs the FRC assumption of 3.3x for FY14.
Additionally, capex and opex spending were lower than the FRC
assumptions, traffic performance was marginally better than
assumed and yield per passenger was higher than the FRC
assumption for 2014.
Revenue was ZAR7.1bn (FRC: ZAR6.9bn), EBITDA was 4.6bn (FRC:
ZAR4.3bn) and capex was ZAR928m (FRC: ZAR991m). The FRC (which
includes some reasonable downside) for the next five years has
2.5% traffic growth CAGR. The FRC also reflects a prudent
volume of capex (ZAR23.5bn in total). The output of this case
is a net debt/EBITDA ratio of 4.4x in 2020.
RATING SENSITIVITIES
Upgrade Trigger: ACSA has continued to deleverage ahead of the
FRC expectations. If ACSA demonstrates strong passenger and
revenue growth as continued deleveraging (net debt/EBITDA < 3x
over the next five years), the ratings could be upgraded. We
consider this scenario somewhat unlikely for several reasons.
ACSA's negative passenger growth in the past two years and the
dampened GDP forecasts for the South African economy limit its
revenue growth expectations. Additionally, capex is expected
to increase from 2015 onwards after several years of low
outlay. Since capex is expected to be significantly debt
funded, management expects net debt/EBITDA to rise above 3x
after 2017.
Downgrade Trigger: If ACSA's net debt/EBITDA is sustainably
expected to remain above 5x (through an entire regulatory
cycle; FRC: 4.4x in 2020) the ratings could be downgraded.
There is a sizeable cushion before the downgrade trigger. The
FRC incorporates conservative assumptions (notably increasing
capex combined with decreasing passenger volumes; even though
capex is partly dependent on volume growth) but remains below
the downgrade trigger. This places ACSA's rating firmly in its
category of 'BBB', and is reflected by the Stable Outlook.
04 December 2014
Sponsor: The Standard Bank of South Africa Limited
Contact:
Primary Analyst
Shyamali Rajivan
Associate Director
+44 20 3530 1733
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Yeshvir Singh
Associate Director
+27 11 290 9401
Committee Chairperson
Nicolas Painvin
Senior Director
+33 1 4429 9128
Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91
22, Email: francoise.alos@fitchratings.com.
Additional information is available at www.fitchratings.com.
Applicable criteria, 'Rating Criteria for Airports' dated 13
December 2013, 'Rating Criteria for Infrastructure and Project
Finance' dated 11 July 2012 and 'Corporate Rating Methodology:
Including Short-Term Ratings and Parent and Subsidiary
Linkage' dated 28 May 2014 are available at
www.fitchratings.com.
Applicable Criteria and Related Research:
Rating Criteria for Airports
Rating Criteria for Infrastructure and Project Finance
Corporate Rating Methodology - Including Short-Term Ratings
and Parent and Subsidiary Linkage
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