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

KEY RATING DRIVERS

ADIF's ratings are equalised with those of Spain's IDR (BBB+/Stable/F2). This reflects the entity's public sector 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.

ADIF was created in 2004 as a public entity corporation, reporting directly to the Ministry of Public Works with the main mission to maintain Spain's rail network. In late 2013, the high speed rail network and associated capital expenditure was transferred to a new entity, ADIF Alta Velocidad (ADIF AV; BBB+/F2/Stable), leaving the non-high speed rail network, which is owned by ADIF.

ADIF reports directly to the Ministry of Public Works. The state appoints members of the board of Directors and its Chairman. (Members of board of directors are appointed by the Minister of Public Works and the chairman is appointed by the Council of Ministers on the proposal of the Minister of Public Works). While ADIF does not have an explicit guarantee, it cannot go bankrupt and if dissolved its assets and liabilities would revert to the state.

ADIF's budget, including debt, is approved at the same time as the central government's budget. In addition, all new long term debt require prior authorisation from the treasury. The largest revenue item is public subsidies from the state to cover ADIF's public mission role. In 2014, ADIF received EUR585m as operating subsidies while fees generated from the operators by the use of the rail network reached EUR102m in 2014. It also receives fees from ADIF AV as a large part of the maintenance on the high speed network is performed by ADIF. The total network being overseen by ADIF is about 12,000 kilometres.

Following an operating expenditure of EUR1.7bn in 2014, ADIF reported a modest operating loss of EUR28.2m, compared with a loss of EUR86.3m in 2013. The management aims to balance the operations in the medium term.

Following the segregation of the company into two, close to 95% of ADIFS's total debt of EUR12.05bn was transferred to ADIF AV. As a result ADIF's debt burden as well as interest expenses are now low and stood at EUR565.6m at end-2014. In line with a moderate capital expenditure programme, Fitch does not expect ADIF to take on additional debt in the near future.

RATING SENSITIVITIES

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

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