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Fitch Affirms SNCF Mobilites at 'AA'; Outlook Stable
July 13, 2017 / 3:22 PM / 4 months ago

Fitch Affirms SNCF Mobilites at 'AA'; Outlook Stable

(The following statement was released by the rating agency) PARIS, July 13 (Fitch) Fitch Ratings has affirmed SNCF Mobilites' Long- and Short-Term Issuer Default Ratings (IDR) at 'AA' and 'F1+', respectively. The Outlook is Stable. A full list of rating actions is at the end of this commentary. The affirmation reflects the unchanged strong links between SNCF Mobilites and the French State (AA/Stable/F1+) over the last 12 months. Fitch classifies SNCF Mobilites as being credit-linked to France under its 'Rating of Public Sector Entities - Outside the United States' criteria, in light of expected very strong extraordinary support from the state, as allowed for under its Etablissement Public Industriel et Commercial (EPIC) status. The ratings also reflect strong oversight from the French government and SNCF Mobilites' strategic role in government policy. The Stable Outlook reflects that on France's ratings. KEY RATING DRIVERS Legal Status (Stronger) Given its EPIC legal status, SNCF Mobilites would benefit from very strong state support in case of need. Although the French government has no legal obligation to prevent a default (but to ultimately cover its liabilities), Fitch assumes that it is highly motivated and has the means to enable SNCF Mobilites, but not its subsidiaries, to service its debt on time. Strategic Importance (Stronger) Fitch assesses SNCF Mobilites' strategic importance to the French state as high. The group is France's main passenger and freight rail transport operator. It also controls several subsidiaries active in road and sea transport, logistics, special types of railway transport and multimodal public transport. Public service orders contracted with the state, the French regions and SNCF Reseau (AA/Stable/F1+), amounted to EUR5.6 billion in 2016 (18% of SNCF Mobilites' consolidated turnover). SNCF Mobilites also received operating grants and investment support in the form of third-party financing from regional transport authorities, mostly for rolling stock (EUR1.5 billion of public transfers received in 2016 for this purpose). Integration (Mid-range) SNCF Mobilites' integration with the French state, is assessed as mid-range. Financial links with the state are strong and take the form of recurrent dividend payments to the French government (EUR126 million in 2016, up from EUR62 million in 2015). The close financial relations are also evidenced by the significant co-financing of railway equipment by the state. The state also directly repays, through the Caisse de la Dette Publique (CDP, a fund whose liabilities are legally binding obligations of the state) EUR1.5 billion of SNCF Mobilites' financial debt. Control (Stronger) The state closely monitors SNCF Mobilites' activities and finances . It is represented on SNCF Mobilites' Board of Directors whose Chairman is nominated by a state decree. The state also monitors SNCF Mobilites' finances through a state participations agency. Finally, SNCF Mobilites' activities are controlled and regulated by ARAFER - the public authority in charge of rail transport's regulation. The group's reported net debt increased to EUR7.97 billion in 2016 (2015: EUR7.72 billion), of which 92% was incurred at the EPIC level. SNCF Mobilites has sufficient available cash resources to meet debt service obligations and any negative net free cash flow (FCF) over the medium term. At end-2016, the liquidity buffer - including EUR4.6 billion of cash and EUR1.6 billion of receivables from the Caisse de la Dette Publique, EUR0.9 billion from SNCF Reseau and EUR0.5 billion from SNCF Group - covered 2017 and 2018 debt service by more than 1.5x. The ratings take into account the ongoing market liberalisation (from 2020 and 2023 for domestic passenger and regional lines, respectively), which may challenge the timeliness of state support in the medium term. This is because extraordinary liquidity support could be viewed as unlawful state aid under EU regulations if it is used to support competitive businesses. However, SNCF Mobilites has adapted its funding policy to avoid a breach of state aid regulation. Debt raised at the EPIC level for competitive businesses within the SNCF Mobilites group is charged at market prices to these business segments. In 2016, SNCF Mobilites recorded stable consolidated revenue of EUR30.5 billion (-1.4% at constant scope and exchange rates), amid sluggish domestic passenger activity due to fierce intermodal competition. Reported EBITDA decreased to EUR2.3 billion in 2016 from EUR2.4 billion in 2015 while expenditure, mostly infrastructure fees and staff costs, increased. Foreign activities - around a-third of 2016 revenue - are expanding rapidly through growing subsidiaries. SNCF Mobilites recorded a net profit of EUR0.5 billion in 2016, compared with a EUR 2.2 billion loss in 2015 (due to EUR2.7 billion of asset write-down). RATING SENSITIVITIES A change in France's sovereign ratings would be mirrored by SNCF Mobilites' ratings. An adverse change in the EPIC status with weaker state support would also trigger a rating review. SNCF Mobilites' ratings could be downgraded if its liquidity reserves decline to levels of under two years of debt service. The rating actions are as follows: Long-Term IDR: affirmed at 'AA', Stable Outlook Short-Term IDR: affirmed at 'F1+' Senior unsecured notes: affirmed at 'AA' EUR12 billion EMTN programme: affirmed at 'AA'/'F1+' EUR3.048 billion commercial paper (billets de tresorerie) programme: affirmed at 'F1+' EUR2 billion euro commercial paper programme: affirmed at 'F1+' Contact: Primary Analyst Nicolas Miloikovitch Analyst +33 1 44 29 91 89 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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