Fears persist of debt vulnerability in tough market conditions
A new study states that the Australasian transport sector is currently stable and will continue to remain so through the rest of the year.
A report published by Fitch Ratings, states that “toll roads will benefit from continuing healthy economic growth, while the weaker Australian dollar will help support ports with exposure to the commodity export sector.
“However, exposure to medium-term bullet debt could leave issuers vulnerable to refinancing risk in the event of a significant downturn in the Australian economy or banking sector.”
Fitch’s 2016 Mid-Year Outlook: Australian Transportation report indicates that, continuing the trend of recent years, toll road traffic has remained strong in 2016, following the completion of road-expansion works.
“In the nine months to March 2016, traffic growth on Transurban’s Sydney network grew by 7.7 per cent year-on-year, with a slower pace in Melbourne and Brisbane.
“Fitch expects overall traffic growth in the low- to mid-single digits for the agency’s rated Australian road portfolio in 2016.
The study reveals that the performance of the Australian transport assets is “underpinned by their important economic roles”.
“Roads in the transurban portfolio make up the bulk of the key motorway networks in Sydney and Melbourne, and provide a crucial connection to the central business district in Melbourne.
It shows that Australian transport companies have “unusually high exposure to medium-term (three- to five-year) domestic bullet bank debt compared with global peers.
“Cash flows should be able to support potentially higher debt costs in the future, while the need for regular refinancing of these long-life assets is a weakness relative to global peers, and exposes these companies to the liquidity risks of the Australian banking sector.”
The report states that the transport industry is “sensitive to fluctuations in Australian GDP growth, and its banking sector is heavily reliant on external debt funding.
“Australian transportation firms could be exposed to reduced traffic levels or to difficulties in refinancing maturing debt should either of these factors deteriorate substantially.”
For more details, visit the Fitch Ratings website.