Press Release
Solicited Rating
Dagong Europe Assigns ‘BB+’ Long-Term
Credit Rating to Salini Impregilo S.p.A.,
Outlook Stable
Rating Action Report
Milan, 2 December 2015
Dagong Europe has assigned a Long-Term Credit Rating of ‘BB+’, to Salini Impregilo S.p.A. The
Outlook is ‘Stable’.
RATING RATIONALE
The assigned rating reflects Salini Impregilo’s (SAL) sound business profile, supported by an
outstanding order backlog, good predictability of future performance, and geographically welldiversified operations with moderate dependence on the domestic Italian market. Despite its
prudent approach to country risk, the exposure to high-risk countries and regions constrains our
assessment of SAL’s operating, regulatory and legal environment. Our Moderate assessment of
Industry Development and the Regulatory and Legal Environment further reflects the high
complexity of sizeable infrastructure projects, that pose significant operational and performance
risks.
Although SAL’s size in terms of revenues is modest compared to the largest global construction
players, we consider its competitive positioning to be strong due to its solid track record built on
technological know-how and strong project and risk management skills. These have enabled the
company to become a leader in a niche segment of the construction industry, and overcome the
intrinsic operational and performance risks of the infrastructure construction sector. The strong
order backlog and increasing success rate in tender participation are indicative of SAL’s strong
development strategy and competitive positioning.
The company applies a sensible financial policy focused on reducing financing costs, managing its
debt maturity profile, and keeping a reasonable dividend pay-out policy. Corporate Governance
plays an important role in our assessment as SAL is exposed to ultimate family control and operates
in an industry prone to governance misconduct. We regard the corporate governance framework
and tools implemented by the company as providing sufficient protection to all the stakeholders and
assuring the proper controls. In our opinion the Corporate Governance is neutral to SAL’s rating.
“We consider SAL to have a robust financial profile, supported by growing revenues, solid margins,
sustainable leverage, and comfortable liquidity backed by a high cash buffer and undrawn bank
facilities. However, the capex-driven negative free cash flow (FCF) is the main constraint on our
assessment of SAL’s financial profile”, says Marta Bevilacqua, Director of the Corporates Analytical
Team and Back-up Analyst for Salini Impregilo. Considering SAL is in the growing investment cycle,
we expect the negative FCF to remain, constraining SAL’s financial performance and rating in the
short-to-medium term.
Primary Analyst
Richard Miratsky
Sector Head
Senior Director Corporates
Tel +39 02 72746024
[email protected]
Back-up Analyst
Marta Bevilacqua
Director Corporates
Tel +39 02 72746028
[email protected]
Committee Chairperson
Carola Saldias
Sector Head
Senior Director Financial Institutions
“In our view, the recently announced acquisition of Lane Industries Inc. (Lane) for USD 400Mn is
aligned with SAL’s strategy. Lane, a US-based company engaged in infrastructure projects and
asphalt paving, supports SAL’s business profile by increasing scale and diversification, and
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improving access to one of the largest markets for engineering and construction. We perceive
SAL’s financial profile to be strong enough to absorb the acquisition without compromising its
relative position within its rating category” adds Richard Miratsky, Head of the Corporates Analytical
Team and Primary Analyst for Salini Impregilo.
We do not apply an External Support Assessment (ESA) in SAL’s case as the company is not
related to any government or local authorities, and we do not expect any direct governmental
support to be provided to SAL in a case of distress. Therefore SAL’s Long-Term Credit Rating of
‘BB+’ is aligned to its Standalone Credit Assessment (SCA) of ‘bb+’.
Our credit opinion is based on the following main factors:
 Our assessment of the Environment Analysis as Moderate reflects operating and
performance risks intrinsic to the infrastructure construction industry, and SAL’s
exposure to high-risk regions. Despite low cyclicality and modest capital intensity we assign
a Moderate score to the Industry Development and Regulatory and Legal Environment. This
reflects the high complexity of sizeable infrastructure projects and the significant operational
and performance risks involved, compared to other industries. It also highlights the company’s
exposure to higher risk countries and regions.
 We view SAL’s business profile as very sound, supported by an outstanding order
backlog, solid geographical diversification and a good project portfolio without major
concentrations. We assess SAL’s Development Strategy as Strong, boosted by an
outstanding construction backlog. At 6x current revenues, SAL’s construction backlog is the
strongest among its peers and assures very good predictability of future revenues and cash
flow generation. We assess SAL’s Diversification as Satisfactory, reflecting the company’s solid
geographical diversification, with only 15% of revenues from the domestic Italian market.
Although this share might increase in the future, reflecting a higher proportion of Italian projects
in SAL’s backlog (33%), we do not perceive this as a major constraint. SAL’s portfolio of projects
is well-spread among its main business areas without major concentration, further supporting
our view on SAL’s diversification.
 Although of moderate size compared to the largest global players, SAL has a Strong
Competitive Position due to expertise and know-how in specific segments. With FY14
revenues slightly above EUR 4Bn, we assess SAL’s size as moderate compared to the largest
global construction players. However, we do not consider this as a major constraint on SAL’s
rating as we regard the company’s size as sufficient to compete on large and complex
infrastructure projects. Furthermore, its good track record, built on technological know-how and
strong project and risk management skills, allows the company to successfully compete in its
specific segments, as evidenced by its global leading position in hydro and dam construction.
The strong order backlog and increasing success rate in tender participation are indicative of
SAL’s successful Development Strategy and Competitive Positioning, which we assess as
Strong.
 The shareholder structure exposes SAL to ultimate family control risks, and therefore
the Corporate Governance is key to overcoming the risks of an industry that is prone to
corporate misconduct. Our assessment of SAL’s Corporate Governance is Neutral, as we
regard all the corporate governance tools implemented by the company as sufficient to provide
solid protection to all the stakeholders, and assure the proper controls. The company maintains
a good level of information transparency, based on the guidelines set out in the Corporate
Governance Code promoted by Italian stock exchange.
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 SAL’s robust financial profile, supported by its comfortable liquidity position, is
constrained by negative FCF. We assess SAL’s Financial Profile as Satisfactory, supported
by growing revenues, solid margins and a high cash buffer. The company’s leverage is
sustainable and well-positioned within its rating category. We highlight that SAL maintains a
significantly high level of cash, and on a net-debt basis is close to a debt-free position. Although
this provides a comfortable buffer for managing leverage, we base our debt coverage and
leverage ratios on gross debt, reflecting our view that cash reserves diminish rapidly in
distressed scenarios. The main constraint on SI’s financial profile and rating is the negative
FCF, driven by increasing capex, which we expect to continue into 2016. We expect the
acquisition of Lane to temporarily weaken SAL’s financial profile due to increased leverage,
higher interest expense and potentially diluted profit margins. However, we perceive SAL’s
financial profile as solid enough to absorb the impact.
 We assess SAL’s Financial Policy as Strong and liquidity position as comfortable. The
company applies a sensible financial policy aimed at reducing financing costs, deleveraging,
and maintaining the solid cash buffer. Taking advantage of the low interest-rate environment
and solid operating and financial performance, the company has been able to refinance a large
part of its long-term debt at more favourable rates, and smooth-out its debt maturity profile. We
view positively SAL’s reasonable dividend policy, which keeps dividend pay-outs at 20%; and
perceive the liquidity position as comfortable, supported by high cash reserves and headroom
under committed credit lines.
 In our view, the recent acquisition of Lane is supportive to SAL’s business profile. We
perceive SAL’s financial profile strong enough to absorb the related increase in leverage
and interest costs. We consider the acquisition to be in line with SAL’s strategy and highly
supportive to its business profile by increasing scale and diversification, and improving access
to one of the largest markets for engineering and construction. Furthermore, Lane could serve
as a solid platform for SAL to participate in potential future consolidation of the currently highly
fragmented US market. We perceive SAL’s financial profile to be strong enough to absorb the
acquisition-related interest costs and increased leverage without negative impact on the current
rating category. However, we highlight that SAL’s profitability could be temporarily diluted due
to the lower margins of the target company, and the acquisition could delay SAL’s return to
positive FCF compared to the original plans.
UPSIDE - DOWNSIDE POTENTIAL FOR THE RATING
The LT credit rating could be upgraded if SAL manages to maintain its currently solid profitability
throughout its ambitious growth plan, succeeds in turning FCF positive on a sustainable basis, with
FCF/Debt reaching 4%, while decreasing its leverage close to or below 2.5x Debt/EBITDA on an
adjusted basis. We would expect SAL’s move to investment grade to be supported by the
successful execution of its ambitious business plan and a continuous fortifying of its entrenched
competitive position. Successful execution of the recent acquisition with prevailing positive impacts
on SAL’s business and financial profile could also result in positive pressure on the rating in the
medium term.
We would consider downgrading the rating if SAL’s profitability levels weaken significantly below
the targets indicated in the business plan. This could occur as a result of underperformance on
major projects, other operating setbacks or unsuccessful execution of the Lane acquisition.
Furthermore, persistent negative FCF, resulting from weak receivables collection, excessive
investments, further sizeable debt-funded acquisitions or overly generous shareholder
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remuneration could put negative pressure on the rating. We would consider a negative rating action
if the leverage significantly increases, with the Debt/EBITDA ratio approaching 5.0x on an adjusted
basis. Any concerns over the current comfortable liquidity could also trigger a downgrade of SAL’s
LT credit rating.
OUTLOOK
The ‘Stable’ Outlook reflects our expectation that SAL’s strong business profile, supported by the
outstanding order backlog and sound operating performance, will continue to produce robust
financial results. We believe these will be in line with the business plan and continue to support
SAL’s comfortable position within its current rating category. The stable outlook is further supported
by very solid visibility due to SAL’s strong order backlog, which covers 100%, 98% and 83% of
revenues for 2015-17. The stable outlook also assumes positive synergies from the Salini/Impregilo
post-merger integration, and positive impacts from the Lane acquisition.
BUSINESS PROFILE
Salini Impregilo S.p.A. (SAL) is an Italian construction company listed on the Milan Stock Exchange,
in the MTA segment. The company’s market capitalisation on 1 December 2015 was approx.
EUR 2Bn. SAL operates in a niche construction segment, specialised in complex infrastructure
projects such as hydro-power plants, railways, highways and underground construction. SAL is a
pure infrastructure construction company and one of the leading global players in its segment. In
water infrastructure it is a global leader, having built 230 dams and hydroelectric plants. SAL
operates in more than 50 countries on 5 continents and has over 30,000 employees. At its current
capital structure and organisation, SAL is the outcome of an acquisition transaction launched in
2013, which saw Salini acquiring control of Impregilo and a subsequent reverse merger with effects
starting from 1 January 2014. SAL expects to reach EUR 4.7Bn revenues in 2015, an increase of
15% compared to EUR 4.1Bn revenues in 2014.
SAL operates in the global construction market, which is estimated to be worth EUR 3.3Tn. The
company’s reference market is 27% of the global market, or EUR 885Bn. The infrastructure
construction segment is less volatile compared to other construction segments like residential
building. Given the large-scale and knowledge-intensive nature of infrastructure projects, the sector
has not seen any major slowdown during the global economic malaise, as it is driven mainly by
long-term urbanisation and industrialisation developments.
FULL LIST OF SOLICITED RATINGS ASSIGNED
Salini Impregilo S.p.A.
Long-Term Credit Rating (FC&LC)
Outlook
Standalone Credit Assessment (SCA)
External Support Assessment (ESA)
BB+
Stable
bb+
N/A
FC&LC: Foreign Currency and Local Currency
CRITERIA APPLIED

Dagong Europe Criteria for Rating Non-Financial Corporates, published on 1 August 2013

Dagong Europe Credit Rating Definitions, published on 13 May 2014

Dagong Europe Accounting Adjustments to Financial Statements of Non-Financial
Corporates, published on 15 October 2013
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
Dagong Europe External Support Assessment (ESA) for Non-Financial Corporates, published
on 16 December 2013
CONTACTS
Primary Analyst
Richard Miratsky
Sector Head
Senior Director Corporates Analytical Team
[email protected]
Back-up Analyst
Marta Bevilacqua
Director Corporates Analytical Team
[email protected]
Committee Chairperson
Carola Saldias
Sector Head
Senior Director Financial Institutions Analytical Team
OTHER REGULATORY DISCLOSURES

The List of Ratings included in this Rating Action Report were solicited and disclosed to the
issuer(s).

Dagong Europe uses public and non-public information provided by the issuer, public
information from reliable third-party sources and internally developed models and analytical
tools. Dagong Europe analytical team does not take into consideration sources of information
deemed not reliable.

This Rating Action Report was disclosed to the rated entity before being issued. Dagong
Europe had provided a one advance copy to the issuer to review factual errors and
unintentional release of confidential information. Dagong Europe maintains editorial control
over the Rating Action Report, representing its independent opinion.
For any further information on criteria and procedures, please refer to the following links:
http://www.dagongeurope.com/ratingcriteria
http://www.dagongeurope.com/procedures
External Communications
Sidney Shin-Yi Dung
Chief Communications Officer
Tel +39 02 727460 38
[email protected]
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