OREANDA-NEWS. S&P Global Ratings today said it has affirmed its 'A-' long-term corporate credit rating on France-based concession and contracting group VINCI S. A. (Vinci). The outlook is stable.

At the same time, we affirmed our issue rating on the group's senior unsecured debt at 'A-'. The short-term rating is A-2.

The affirmation follows our review of the potential impact of Vinci's recent acquisitions on our ratings. On Aug. 8, Vinci announced the acquisition of 100% shares in Linea Amarilla S. A.C. (LAMSAC) through its subsidiary VINCI Highways in a transaction worth €1.5 billion. This followed the acquisition on July 28 of 60% of Aeroports de Lyon (ADL) through a Vinci-controlled consortium which also includes Caisse des Depots and Credit Agricole Assurances, Aeropuertos Dominicanos in Dominican Republic, and 40% in two Kansai airports in Japan completed last April.

Today's affirmation also reflects our view that the group will continue to generate strong cash flows on the back of its stable concession activities. The half-year results show Vinci concessions' strong EBITDA growth of 7.4% over the same period past year, as a result of the consolidation of Aerodom; a strong increase in air passengers, up 10.2% in the same period; and the sound performance of toll roads on the back of traffic growth (3.3%) and tariff increases (+1.5%) over the same period. The contracting business results were flat, however, due to the construction business' weak performance but partly offset by Vinci Energies' sound performance.

When we incorporate the new acquisition into our base case, we expect five-year weighted-average FFO to adjusted debt for 2014-2018 of 25%-26%. This is comfortably above our threshold of 20% and commensurate with the current rating.

Our base-case operating scenario assumes: A small increase in revenues reflecting recent acquisitions, the strong performance of concessions, and improving conditions at the construction business. A slight EBITDA margin improvement with an overall EBITDA increase of between 4%-5%.Annual capital expenditure (capex) of about €1.6 billion-€1.8 billion for the next few years, including capex in recently acquired concessions. Following the increased participation of the concession business, we expect transportation infrastructure to contribute two-thirds of the threshold at which we would apply the low volatility benchmarks. This results in the company being able to carry more leverage at a given rating level. However, in our opinion, this may not result in an automatic upside to the ratings as we already reflect a one-notch upward adjustment under our comparable ratings analysis to reflect the significant and resilient contribution of concessions to group EBITDA. Furthermore, our ratings on Vinci also incorporate a one-notch upward adjustment to reflect the diversification of the group's cash flows, and this may no longer be warranted given the higher contribution of a specific line of business.

The stable outlook reflects our expectation that Vinci will continue to generate strong cash flows, primarily due to its stable concession activities, allowing the group to maintain FFO to adjusted debt of at least 20%.

Any change in the ratings on Vinci would result in a corresponding rating action on ASF and Cofiroute, as long as they remain core group subsidiaries.

We could consider lowering the ratings if Vinci's adjusted FFO to debt fell to less than 20%. We could also consider a downgrade if transportation infrastructure's contribution fell to less than 50% of the group's consolidated EBITDA. We would likely perceive this as a weakening of the predictability and stability of overall group cash flows, and reassess our positive comparable rating analysis modifier.

In our opinion an upgrade would require FFO to debt to improve above 30%, or for transportation infrastructure to maintain two-thirds of the group's total contribution or more of its consolidated EBITDA on a sustainable basis. Under this circumstance, we would likely revise upward our assessment of Vinci's financial risk profile, assuming our current base-case scenario. This is because we would apply our low volatility benchmarks. Vinci's high capex, its heavily acquisitive growth strategy, and the current economic environment may, however, constrain the potential for an upgrade.