Sale value of semi-states under threat as credit ratings fall
DAA and Bord Gais have both sent debt details to McCarthy
Published 26/10/2010 | 05:00
Several semi-state companies have provided details on their debt levels and credit ratings to the review group led by economist Colm McCarthy. The levels of debt at some companies could hugely reduce their potential sale value, the Government fears.
Bord Gais has sent a large amount of material on its debt position to the review group ahead of a meeting between the two sides, and the Dublin Airport Authority (DAA) is also believed to have sent material into the review group covering this subject.
Earlier this year ratings agency Standard & Poor's lowered the rating on some DAA bonds to BBB+, just two notches above junk, with further downgrades possible as passenger numbers continue to decline.
The company had a debt-to-equity ratio of almost 130pc in 2009 and made an after-tax loss of €13m, as passenger numbers dropped and it took charges for redundancies and property writedowns.
The chief executive Declan Collier has made it his priority to restructure the DAA so that the levels of debt do not put an unnecessary strain on the company, which will shortly open its Terminal 2 facility.
Semi-states are also suffering damaging downgrades because of the economic conditions in the country. For example, Bord Gais executives were left somewhat surprised by a recent decision of Moody's to put some of its debt on review for possible downgrade.
The ratings agency said the review was triggered by "increased uncertainty regarding the Government's ability to preserve its financial strength against the backdrop of a clouded economic outlook".
Moody's said the outcome of the review would be mostly driven by "developments at the sovereign-rating level", but did admit that Bord Gais had a strong "stand alone" rating, due to its cash position and access to its own network. Bord Gais is regarded as the most likely semi-state to be sold, although the thorny issue of staff shareholdings will have to be grappled with by the McCarthy group.
No asset sales are expected to be implemented in 2010, although the four-year plan to be unveiled in November will talk in general terms about the possible proceeds of such sales. Mergers and acquisitions specialists are watching closely what happens with the various companies.
While all the semi-states are effectively underwritten by the shareholder -- the Government -- the strength of their individual balance sheets also matters. For example, the average interest rate for the DAA is 5.8pc, with ESB at just 4.1pc. Most of the semi-states have fixed interest rates so should be insulated if credit tightens next year.