OREANDA-NEWS. November 17, 2015. Fitch Ratings has affirmed Vinci S.A. (Vinci) Long-term Issuer Default Rating (IDR) at 'BBB+', senior unsecured rating at 'BBB+' and subordinated notes at 'BBB-'. The Outlook is Stable.

In spite of a weaker construction market in France, Fitch expects Vinci's credit profile to be largely unaffected, supported by strong cash flows from the concessions business, a satisfactory liquidity position and the increasing diversification of the group into higher value sub-sectors and gradual expansion into international markets. The mature regulated concessions business continues to provide a stable dividend stream to the parent, providing financial flexibility to fund a strategy of bolt-on acquisitions, and some larger ones like ANA Aeroportos.

Fitch adjusts leverage calculations for Vinci to reflect the non-recourse nature of the concessions business by excluding related EBITDA and non-recourse debt but including sustainable dividends, as well as operating leases and seasonal working capital adjustments.

KEY RATING DRIVERS
Resilient Business Model
Vinci is supported by a vertically integrated model, with stable cash flow generation from concessions complementing the more traditionally volatile construction business. Fitch expects the contracting division to be slightly negative on a like-for-like basis while the concession business should grow by a low single digit. Foreign contracts should partially mitigate any extra weakness on the French construction side while the concession business should benefit from some growth in traffic thus supporting the lower French inflation and tariff adjustments.

Strong Market Position
Vinci's dominance in France remains, with 62% of revenue from the domestic market. Austerity measures in France are likely to keep affecting construction output in the medium term, and Fitch views positively the company's greater emphasis on growth markets. Its international order backlog represents around 50% of the total.

High Quality Concessions
ASF and Cofiroute are mature assets and a strategic part of the French motorway network. They continue to generate solid free cash flows (FCF) and support up-streaming of dividends. These assets benefit from a stable tariff framework and have a long maturity (beyond 2036), with headroom to provide further financial flexibility to the group if necessary.

Satisfactory Financial Profile
Vinci has a moderate level of debt, ample liquidity and flexibility to adapt to adverse market conditions if required. Although the structural subordination of holding debt to concession debt is noted, Fitch's analyses of the recourse group excludes EBITDA from concessions and only takes into account recurring dividends.

M&A Activity
Over the last two years Vinci has witnessed strong M&A activity, with a significant asset rotation in the concessions business. In 2013 Vinci further developed its airports division with the acquisition of ANA Aeroportos and the increase of its stake in ADP. Last year saw cash outflow to finance the buyout of the Cofiroute minorities, partially offset by the disposal of a 75% stake in Vinci Park. Strategically Fitch notes the more mature profile of ANA Aeroportos compared with Vinci's Cambodian airports assets while offering some upside on both aeronautical and non-aeronautical revenues. It also significantly increases the importance of its airport division and further diversifies its concession business.

KEY ASSUMPTIONS
- Single digit decrease of revenues from contracting business in 2015, before flattening. Single digit increase of revenues from the concessions business.
- Stable margins both in contracting and concession activities
- Stable dividends received from concessions
- Stable capex, with some increase in the next few years related to "motorway stimulus", and modest sized acquisitions
- Stable dividend pay-out ratio

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
The ratings are likely to be constrained at their current level. However, a radical change in the business risk profile could be positive in the medium term.
-Significantly improved geographical diversification away from the French market (under 40%)
-Recourse group to benefit from proportionally higher concession dividend income (more than 50% of recourse cash flow)

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-An increase of leverage (recourse net debt to EBITDA + dividends) on a sustained basis above 1.0x.
-Decline in dividends received from the concession business or signs of financial distress on these assets (i.e. covenant breach).
-Any action by the parent to financially support (guarantee) any non-recourse debt backed concession in financial distress.

LIQUIDITY
Vinci's liquidity position remains strong at EUR12bn at end-2014, taking into account all holding and operating entities. This comprised EUR6.6bn of cash and EUR6bn of undrawn committed medium-term credit facilities, recently extended with new maturity to May 2020. Vinci also has sound access to capital markets.