Downer EDI at 6-Month High on Reliance Restructure: Sydney Mover
February 06, 2012, 2:42 PM ESTBy Nichola Saminather
Feb. 6 (Bloomberg) -- Downer EDI Ltd., an Australian contractor, surged to the highest stock price in six months after the New South Wales state government reached an agreement to restructure the financing of Reliance Rail, of which the company owns 49 percent.
Downer EDI shares soared 7.1 percent to A$3.79 as of the 4:10 p.m. close of trading in Sydney, the highest price since Aug. 4. They have climbed 18 percent this year, compared with a 5.9 percent gain in the benchmark S&P/ASX 200 index.
The state government agreed to invest A$175 million ($188 million) in Reliance Rail in 2018 in return for full equity in the company, according to a statement from Downer to the stock exchange today. Downer will contribute all its equity in Reliance Rail, which is building trains for the Sydney suburban rail network, as part of the restructure, and agreed to pay A$12.5 million in 2018 if Reliance’s senior debt needs to be refinanced.
“It basically removes the risk that Downer would be required to plug any holes in the funding structure with its own funds, which was a risk that’d been weighing heavily on investors’ minds,” said Will Seddon, who helps oversee $300 million at White Funds Management in Sydney. “It should be viewed by ratings agencies as a significant improvement in creditworthiness.”
Rating Review
Moody’s Investors Service Inc. put the debt rating of Reliance Rail Finance Pty, the funding arm of the company, on review for a possible downgrade in December, saying it was concerned with a potential funding gap this month and uncertainties about the performance of delivered trains. The review followed cuts of several notches on both the company’s senior and subordinated debt by Moody’s and Standard and Poor’s, starting in 2010, due to concerns about project funding and delivery delays.
Fitch Ratings today said the restructure “reduces the risks to cash flows associated with the unwinding” of the Sydney rail project, and means Downer doesn’t need to inject further equity into Reliance Rail.
Reliance Rail isn’t part of India’s Reliance Industries Ltd., which owns the world’s largest refining complex.
Downer was also awarded a six-year, A$570 million magnetite mining contract with Karara Mining Ltd., it said today in a separate statement.
--Editors: Edward Johnson, John McCluskey
To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net
To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net
