Standard & Poor’s Ratings Services has assigned its ‘BB-‘ long-term corporate credit rating to the state-owned Romanian rail infrastructure company CFR. The outlook is positive.
The rating on CFR reflects its importance to and support from the central government of Romania (foreign currency BB/Positive/B; local currency BB+/Positive/B). Government support is reflected in state ownership, direct budget subsidies, commitment to improving track access charge (TAC) regulation, state guarantees on almost all of CFR’s existing debt, and the potential to defer tax payments. The monopoly nature of CFR’s business and importance to the Romanian rail sector will require ongoing financial support. The company’s stand-alone profile is too weak to survive without it. CFR has poor operating efficiency, aggressive capital expenditure plans, very weak financial performance, and high counterparty risk.
CFR relies on the ability of the state budget to support its activities. So far, it has not received sufficient subsidies to carry out its ambitious overhaul and modernisation programme.
CFR’s operating efficiency is low, primarily owing to overstaffing. Personnel costs make up almost 40% of total operating costs. Following a government programme, CFR laid off about 8,100 employees, 18% of its workforce, as of Sept. 15, 2003. This should improve efficiency and the profitability of operations.
The company’s financial standing is weak, with very low and volatile cashflow. Operating cash flow in 2002 was close to zero, primarily owing to a build-up of payables to the budget and suppliers. Financial performance may only improve in 2004, when TAC regulation should become more cost-reflective.
“The positive outlook reflects that on the sovereign. Any change in the sovereign rating would have an impact on both the government’s ability to support CFR’s operational and financial obligations and CFR’s position in the Romanian rail sector,” says Standard & Poor’s Infrastructure Finance credit analyst Mikhail Galkin. “The outlook also reflects the expected implementation of the new TAC regime, which should support CFR’s financial standing.”