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Sacyr - Rating Report

RATING RATIONALE

- We affirm our corporate rating on Sacyr S.A. (Sacyr) at B-.

- Sacyr is continuing its process of reducing its debt load, the legacy of a strategy to build-up a conglomerate in the run-up to the 2008 financial crisis. The related recession and the collapse of the Spanish property mar-ket put an end to the expansion strategy, leaving Sacyr with a significant amount of debt. Since then the Spanish company has been working on reducing its debt through assets disposals. During the last year, the most significant event was the three derivative transactions on its 8% stake in Repsol, the Spanish integrated oil & gas company. The transactions allow Sacyr to fully remove its downside exposure to Repsol shares below c. €10.6 (vs. current share price of €15.6), while retaining some of the upside. Additionally it reduced Sacyr’s reported net debt.

- Our rating remains constrained by the mixed performance of Sacyr’s Construction business (12% of LTM 30 September 2017 EBITDA). The company’s backlog increased over the last 9 months and represents a com-fortable 3.8x of LTM revenue. The proportion of activity in Spain is expected to decrease as international exposure accounts for 84% of the €4.3bn backlog. However, the actual financial performance of the segment has been weak during the first nine month of FY17 with a low 4.0%