OREANDA-NEWS. Fitch Ratings has affirmed Italian construction company Astaldi S.p.A.'s (Astaldi) Long-term Issuer Default (IDR) and senior unsecured ratings at 'B+'/Recovery Rating 4' (RR4). The Outlook is Stable.

The rating reflects Astaldi's positive operating performance and a robust backlog providing revenue visibility for around three years, but also the company's lack of deleveraging progress, following no material disposals in the past year and given growing investments into concessions to over EUR150m.

KEY RATING DRIVERS
High Margin Constructor
Astaldi has a solid track record in delivering complex works. Leading technical skills allow the company to bid for highly profitable jobs, positioning Astaldi among the few companies in the sector with double-digit EBITDA margin. On the other hand, the profitability of some projects could be offset by an increase in execution risk and more volatile working capital dynamics, especially in higher-risk markets. Fitch highlights that in Venezuela the outstanding amount of payables to be collected is still around EUR280m (as of end-September 2015).

Project Concentration
With the top 10 projects accounting for around 60% of the construction backlog, Astaldi's concentration risk is one of the highest among peers. However, all its main projects are on time for delivery with the largest ones in an advanced stage of completion. Also, healthy order inflows in 2015 of more than EUR6bn should partially mitigate this risk.

Maturing Concessions Reduce Equity Needs
Many projects in the company's portfolio are now entering a more mature phase. Fitch expects for the coming years lower equity injections into concessions, as Astaldi has made the bulk of its investments in the last few years. In the absence of material cash-in from its asset recycling strategy, any large investment could be detrimental for the rating.

Asset Disposal Plan Delayed
In late 2014 the company unveiled a divestment plan for its concessions portfolio in its effort to deleverage rapidly. The plan was to sell off the concession through a special purpose vehicle, or by disposing each investment in a one-to-one transaction. In the past year no major transactions have occurred though, and the expected deleveraging has slowed. Today's negotiations with Abertis are in an advanced stage for the sale of Astaldi's most liquid asset (A4 motorway, valued around EUR120m) with exclusivity granted until the end of March.

Healthy Liquidity
Liquidity amounted to around EUR780m at end-3Q15, comprising EUR464m in reported cash and EUR320m in undrawn committed credit facilities expiring in 2019. This provides ample headroom to cover working capital swings during the year and EUR100m in short-term debt maturing over the next 12 months.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Astaldi include:
- Projects profitability aligned with historical trends
- Stable dividends pay-out
- Limited equity injections into maturing projects
- No material assets disposal over the next four years

RATING SENSITIVITIES
Positive: Developments that may, individually or collectively, lead to positive rating actions:
- Evidence of successful implementation of asset rotation strategy leading to gross recourse debt reduction
- Material improvement in working capital dynamics
- Fitch-adjusted net leverage, including factoring, below 3.5x on a sustained basis
- Improved geographic mix with an increased exposure towards lower-risk markets, construction contracts with advanced payments and reduced order backlog concentration

Negative: Developments that may, individually or collectively, lead to negative rating actions:
- Evidence of material losses on construction projects
- Fitch-adjusted net leverage, including factoring, above 4.5x on a sustained basis
- Worsening of working capital position