By NZPA
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Monday 16th September 2002 |
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The company's status has gone to double-`B'-plus/single-'B' from triple-`B'/`A-2' because of the company's weak liquidity position and the challenges it faces to improve its internal cash flow in the near-to-medium term.
S&P said the ratings were on "creditwatch" with negative implications due to uncertainties surrounding the company's long-term bank funding.
"Tranz Rail's current liquidity position is weak and an improvement relies on the company's ability to secure adequate long-term bank funding or complete potential equity raising."
S&P said that securing that funding depended on the company's ability to provide additional security under the Interisland ferry Aratere's lease.
"The Aratere lease is important for the company's profitable Interisland Line business and its ability to meet the forecast revenue growth," Parvathy Iyer, an associate director of S&P's corporate & infrastructure ratings, said.
"Until the financing issues are resolved and the liquidity and internal cash generation improve, the company's financing flexibility will remain a concern."
Ms Iyer said that Tranz Rail's short-term revenue target also appeared "challenging".
Despite Tranz Rail's entrenched position in the freight market, the company's underlying operation had deteriorated significantly in fiscal 2002, with competitive issues compounded by extensive operational changes.
Even though Tranz Rail planned to grow its freight volumes and revenue through a slimmer cost base, greater service reliability and product mix, its track record suggested that it would face a challenge to "improve and sustain satisfactory cash flows".
S&P will review Tranz Rail's position when the Aratere lease and bank funding issues were resolved, currently expected by mid-to-end November.
If it managed to successfully negotiate those issues and improve its financial buffer through a potential share issue, it could regain a stable ratings outlook, the agency said.
Tranz Rail shares were up 2c to $1.57 in early afternoon trading.
Its shares were selling for as much as $3 each just a few months ago.
Just last week, Tranz Rail delivered a bottom-line loss of $122.7 million for the year, in line with its forecast but well down on the previous year's net profit of $5.6 million.
Asset writedowns and changes in its accounting treatments lowered the company's operating profit from $143.3 million to $23.9 million.
The company indicated it was expecting a downgrade in view of its performance and debt gearing. However, it was looking forward to achieving a targeted operating profit of $55.8 million in the current financial year.
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