654654 Airports Company South Africa
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Fitch Rates Airports Company South Africa Limited 'AA(zaf)'
Thursday, May 31, 2007 | 00:00

Fitch Ratings-London/Johannesburg-14 February 2007: Fitch Ratings has today assigned Airports Company South Africa Limited ("ACSA") National Long-term 'AA(zaf)' and Short-term 'F1+(zaf)' ratings. The Outlook is Stable. ACSA owns and operates South Africa's three major international airports: OR Tambo International ("ORTIA") in Johannesburg; Cape Town International ("CIA") and Durban International ("DIA"), (which represent 93% of the group's FYE06 revenue) and the six largest national airports in Bloemfontein, East London, George, Kimberley, Port Elizabeth and Upington.

The ratings reflect ACSA's stable and growing economically-regulated profit generation from its strategically located international and national airports. The ratings are further supported by the airports being national infrastructure assets, with regulated monopoly status and no direct competitive threat internationally or domestically. In addition, ORTIA serves as the main entry route to South Africa, the rest of Southern Africa and for international traffic.

Although ACSA's passenger base is skewed towards the domestic traveller (70% by volume), implying dependence on the South African economy, international passengers (who are charged higher tariffs) represent 57% of aeronautical income and contribute more to commercial revenue. Its significant exposure to the national carrier, South African Airways, is balanced by the emergence of low-fare carriers and demand for slots from other carriers. Near- and long-term passenger forecasts, current capacity constraints and the hosting of the 2010 Soccer World Cup tournament denote a requirement for future expansion at all its airports. Acknowledging the future capital expenditure requirements of the company, the current ratings take into account ACSA's prospective, rather than existing, leverage. This is expected to peak by FY09.

The supportive regulatory framework, including its price cap formula (CPI-X), provides profit stability although ACSA assumes passenger volume risk. Fitch takes comfort that as part of the regulatory review the forecast traffic numbers have been agreed with the airlines associations. In addition, the potentially shorter regulatory period of three years (when there is an opportunity to re-open tariff renegotiations) can provide relief in the event of unforeseen circumstances. The group has significant capital expenditure during the prospective FY08-FY12 regulatory period totalling ZAR19.3bn. This level of capital spending is a sizeable risk to ACSA, although much of this is contracted out on a fixed-price basis (including construction inflation escalation clauses) and many of the projects have already commenced. Funding requirements for the capital expenditure programme are scheduled to begin in FY08 and peak in FY10. Net debt/EBITDA is projected to peak at 4.2x in FY09 before declining to around 3.3x by FY11. Although the capital expenditure programme is significant in size and will increase leverage, the established regulatory framework remunerates the capital base of the company over the long-term.

Although majority government-owned, the ratings are assigned on a stand-alone basis. Fitch does not believe that the state will provide financial aid to ACSA, as this will automatically serve to directly enhance an existing or a prospective bondholder's risk profile. Given past examples where government intervention has taken place, Fitch believes that bondholders would have to acknowledge the risk they undertook and thus share in any restructuring 'pain' accordingly.

Fitch's full analytical report on ACSA is available on its website www.fitchratings.com and to subscribers on
www.fitchresearch.com.

Contact: Marie du Plooy, Johannesburg, Tel: +27 11 516-4900; John Hatton, London, 44 (0)20 7417 4283.

Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364; Ching-Yuen Lock, Singapore, Tel: +65 6238
7301.

Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site,
www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. 

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