BusinessCorporate FinanceAnother blow for Metronet as rating cut

Another blow for Metronet as rating cut

Credit rating of tube network consortium downgraded following concerns over missed performance targets

Metronet, the consortium involved in the £15bn upgrade of London’s tube
network, moved one step closer to losing the investment grade status of some of
its bonds and bank loans, after a credit rating downgrade.

The consortium, made up of Atkins, Balfour Beatty, Bombardier Transportation,
EDF Energy and RWE Thames Water, has bank loans of £810m and bonds of £515m in
issue, which were cut from BBB+ to BBB by Standard & Poor’s.

The downgrade will come as further blow for Metronet. The consortium has
battled to meet its targets for station refurbishment and track replacement, and
has been criticised by London Underground, the body managing the project.

One of the concerns raised involves Metronet’s accounting practices. London
Underground claims the accounting makes comparisons with fellow consortium Tube
Lines difficult, and blurs the relationship between money invested and the
actual work done on infrastructure.

Credit analyst Magdalena Richardson said the downgrades followed a review of
Metronet’s operational performance and concern over its ‘lack of progress to
mitigate work delays’ and ‘limited flexibility in the procurement structure to
accommodate change’.

Other factors influencing the decision included the weakening credit quality
of key consortium member Bombardier and Metronet’s weaker financial performance
than had been originally anticipated.

A Metronet spokesman said the rating downgrade reflected the consortium’s
past position, and that its new management team had been addressing problems in
the business.

‘The Metronet companies have now been substantially reorganised and a
recovery plan is now in place for improved stations delivery,’ the spokesman
said.

Standard & Poor acknowledged that Metronet had met its concerns by
restructuring its planning and management processes, but warned that it was too
early to say whether these measures would be effective.

‘Standard & Poor’s concerns regarding the companies’ ability to meet
performance targets and the effect of potential delays on future operations are
reflected in the negative outlook,’ Richardson said.

Harvey Hoogakker, assistant director of debt advisory at Ernst & Young,
said a downgrade from BBB+ to BBB was in itself not major concern.

‘A slight increase in borrowing costs is the main impact, but the real
concern is that a rating is now one step closer to losing investment grade
status,’ Hoogakker said.

COMPANY REPORTS

FTSE100
Zimbabwe currency hits Standard Chartered as LSE takes offence at ‘derisory’
share bid from Macquarie

Banking group Standard Chartered is planning to book a $40m
(£22.8m) impairment charge into its accounts because of the worsening economic
environment in Zimbabwe. Releasing a pre-close trading update, Standard
Chartered said the currency rate in the African country was depreciating and
that inflation levels had exceeded 400% at the end of November. ‘We took a
further hyperinflation charge during the third quarter and, given the extent to
which the situation has deteriorated, we will recognise an impairment charge,
which has the consequence of negating our net exposure in Zimbabwe,’ it said.

Compass, the FTSE100 caterer, has been drawn into US
investigations into alleged bribery at the UN. The investigations involve
Compass subsidiary Eurest Support Services, a company that supplied UN
peacekeepers and allegedly used leaked details of UN tenders to win contracts.
The US House of Representatives’ international relations committee has released
a report that ESS worked on more than one contract with IHC services, a firm
that allegedly leaked UN tender details to other companies. The report called
for further investigation.

FTSE250
Finance director of Halford’s, Nick Carter, has sold
off 300,000 of his shares in the company at 317p to raise £950,000 and reduce
his stake to just over a million shares. Three weeks ago Halford’s released
interim pre-tax profits for the six months ended 30 September, stating that
profits grew by 20.6% to £40.5m, on turnover up 6% to £337.7m.

The London Stock Exchange last week rejected a 580p per
share bid, below the trading price of 620p price, from Australian bank
Macquarie. The LSE described the bid as ‘derisory’, ‘fundamentally undervaluing
the company’ and lacking ‘any strategic or commercial credibility’. The LSE
added: ‘The board’s confidence in the LSE’s growth prospects as the largest
equity market in Europe with a unique global franchise is reinforced by the
strong interim results.’ Macquarie was reported to be considering a higher bid.

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