Fitch puts Downer on negative ratings watch on train delays

Fitch places Downer on negative ratings watch due to delays, asbestos

By Jason Krupp

Jan. 27 (BusinessDesk) - Ratings agency Fitch has placed Downer EDI Ltd. on a negative watch while maintaining its rating at BBB- after the company announced production delays with its Waratah train project and the discovery of asbestos at its rail production facility in Cardiff Australia.

The outlook, which applies to the company long term issuer and senior unsecured ratings, comes after the trading halt was lifted this morning when the company said it would miss the already-revised January deadline for the delivery of the first Waratah train to RailCorp, which is now expected towards the end of April.

Downer has 49% of a joint-venture with the New South Wales government to build 78 commuter trains and maintain them over a 30-year period, known as the Waratah project.

The company first alerted the market to its asbestos problems in December.

The negative outlook "derives mostly from Fitch's concerns over Downer management's ability to execute complex projects, and the potential for related negative impacts in the future from this latest incremental loss of management credibility, such as winning new contracts and/or obtaining new financing," the credit agency said in a statement.

Downer has put in place an A$250 million facility for delays and changes to the Waratah's manufacturing production schedule and costs, and follows an earlier A$190 million provision made in June last year against the same project.

The June write-downs were the latest in a string of write-downs over a number of years and led to the departure of managing director Geoff Knox in August.
While Downer shares are listed on the NZX, all trading is in Australia where they were last trading 4.6% higher at A$3.66. They were trading at A$6.27 ahead of the announcement of the Waratah write-downs.

Downer also has two issues of Works Finance bonds listed on the NZX. The $200 million maturing in June 2012 which have a 9.8% coupon last traded at $95.97 per $100 face value while the $150 million maturing September 2012 which have a 9.65% coupon last traded at $105.354 per $100 face value.

(BusinessDesk)

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