OREANDA-NEWS. Fitch Ratings has affirmed Administrador De Infraestructuras Ferroviarias' (ADIF) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB+' and Short-term foreign and local currency IDRs at 'F2'. The Outlook on the Long-term IDRs is Stable.

ADIF's ratings are at the same level as Spain (BBB+/Stable/F2). This reflects the entity's public sector legal status and strong operational and strategic ties with the government, resulting in a high likelihood of extraordinary government support if needed. ADIF is therefore classified as a credit-linked entity under Fitch's Public Sector Entity criteria.

KEY RATING DRIVERS
Fitch considers the entity's legal status of 100% public ownership as supportive of its credit quality - "stronger" attribute. More importantly, as a public-sector entity or "ente publico", it cannot be made bankrupt or liquidated. In case of dissolution, all its assets and liabilities would revert to the central government. Under Royal Decree Law 15/2013, ADIF was segregated into two companies. ADIF remains responsible for the non-high speed rail network in Spain and receives state subsidies, while ADIF AV is responsible for the maintenance and expansion of the high speed rail network.

Fitch considers the entity's strategic importance as highly supportive of its credit quality - "stronger" attribute. The distribution of the population in Spain is characterised by the importance of large urban areas, in particular 15 metropolitan areas with more than 400,000 inhabitants. National statistics indicates that these metropolitan areas have 21 million inhabitants or about 45% of the national total. For these urban areas, the availability of a good network of suburban trains is key to mobility as the other alternative is private car or public transport by bus.

The state's control and oversight - "stronger" attribute - also supports ADIF's credit quality. ADIF reports directly to the Ministry of Public Works. The state appoints members of the board of directors and its President (members of the board of directors are appointed by the Minister of Public Works). Its budget, including debt, is approved by Spanish parliament at the same time as the central government's budget. In addition, all financial debt contracted requires prior authorisation from Ministry of Finance and financial debt with non-Spanish residents or bond issuance also requires prior authorisation from the Treasury. ADIF is subject to an ongoing audit by the General Public Auditor (Intervencion General de la Administracion del Estado).

Fitch considers the entity's integration within the Spanish central government as "mid-range" attribute and therefore moderately supportive of its credit quality. In its annual budget, the central government stipulates the amount of transfers that will flow directly to ADIF's equity (without going through profit and loss statement). The amount stipulated in the budget is EUR154m while subsidies are budgeted at EUR585m.

ADIF generated operating revenue at EUR1.3bn in 2015 and reported a EUR72m profit (EUR51m loss in 2014). Net worth was reported at EUR11.57bn, which accounts for about 70% of its total assets. Debt with financial institutions was EUR533m at end of 2015.

RATING SENSITIVITIES
ADIF's ratings are credit linked to those of the Spain's. Therefore any rating action on the sovereign would be mirrored by ADIF's ratings.

A downgrade could also occur if there is a change in ADIF's status or a change in Fitch's assessment of extraordinary support from the state or a material change to its strategic importance or to Fitch's re-assessment of state support though sharp reductions in government subsidies.