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Aussie refinancing path steep, not unclimbable

Moody’s estimates Australia’s rated infrastructure issuers will have to raise some A$9bn to refinance existing debt. But while it states ‘issuers face increasing refinancing challenges’, Moody’s argues ‘the exercise should be manageable overall’.

Ratings agency Moody’s warns Australian infrastructure companies that they will have a hard time refinancing their debt in the next two years, but believes the sector should be able to pull through.

In a new report, the ratings agency estimates Australia’s rated infrastructure issuers will have to refinance about A$9 billion (€6.9 billion; $9.1 billion) of debt in 2012 and 2013, representing some 15 percent of the sector’s total outstanding debt. About 60 percent of maturing debt is in the regulated utilities sector, followed by the toll roads sector with 20 percent, airports with 16 percent, and the remaining 4 percent coming from other infrastructure issuers.

“The Australian rated infrastructure sector is dominated by investment grade issuers, which have strong competitive profiles, low business risk, and stable earnings,” commented Moody’s associate managing director Terry Fanous. That extends to the airports and toll road sector, where the majority of issuers are rated investment grade, the report states.

Conversely, public-private partnership (PPP) projects are at the higher end of the refinancing risk spectrum, facing growing refinancing risk from 2014 onwards. “Over the medium-to-long term, some rated PPPs will face disproportionately higher refinancing risk (from 2014) given their high leveraged structures, which may not be able to support the heightened credit margins without a boost to their capital structures,” Moody’s warns.

The ongoing European sovereign debt crisis poses a significant risk to the needed refinancings, since it is diminishing creditor appetite for foreign markets. And while Australian issuers have done a good job of deleveraging and diversifying their funding sources, the bank market still plays a big role in the infrastructure sector.

The good news is that Moody’s is “seeing a gradual increase in Asian bank lending to this sector,” which may help offset a potential pull-out from European banks. Also, Moody’s highlights that “Australia remains economically and politically stable,” giving it an “advantageous position […] amid expectations of a material slowdown in advanced economies”.