EMEA: News Analysis: Atlantia faces up to worst-case scenarios post-Genoa

21 September 2018 - 12:00 am UTC

Atlantia subsidiary ASPI and the Italian government are preparing to unwind the concession contract for the collapsed Genoa bridge. Termination, revocation and questions around compensation levels are all on the table, as Antonio Fabrizio reports

It has been an exceptionally difficult month for Atlantia. Since 14 August, its Autostrade per l’Italia (ASPI) subsidiary has been the target of mounting criticism, with government officials accusing it of poor maintenance of the Genoa bridge, which collapsed in the same day killing 43 people and shutting down business in one of Italy’s main cities.

ASPI now faces at least four different scenarios as a result of the tragic event.

They all impact ASPI, Atlantia and their direct and indirect shareholders: the Benetton’s family holding Edizione (26.6%), GIC (7.16%), a JV of DIF-Allianz-EDF Invest (6.94%), TCI (5.61%) and China’s Silk Road Fund (5%).

The worst of these is what the Minister of Transport Danilo Toninelli, a member of the populist Five Star Movement which won elections earlier this year, threatened just hours after the incident: revoking the entire ASPI concession contract. Other options include renegotiating the concession with Atlantia, revoking the concession only for the A10 motorway stretch in Genoa, or tendering for a new private operator, as an alternative to a nationalisation of the ASPI motorway network.

The likelihood of a revocation or nationalisation remains unclear. Legal experts contacted by Inframation believe that revoking an entire concession contract for a 3,000km road network would be too complex and expensive for the Italian government to pursue, and subject to a protracted legal battle.

Also, a termination of the concession before its natural end in 2038 would require a massive compensation payment for loss of revenue, a figure that could be as high as EUR 20bn.

Probable outcomes
The ASPI contract includes penalties, to be deducted from the compensation payment, if there’s a proven fault of the concessionaire in maintaining the asset. But even in that case, a significant fee would need to be disbursed by government to take back the asset as the concession contract stipulates that a termination fee needs to be paid in all circumstances.

As a result, there is scepticism that the government can go all the way to revoke the concession.

A 13 September credit report by Moody’s called this an “extreme scenario”. A recent Santander report said that revoking the concession without any indemnity has at the moment a zero probability, and a revocation with a very small amount of compensation is also very unlikely. According to the same report, the “no revocation scenario” is the most probable, but revoking the concession and paying a higher compensation fee is also possible. According to Moody’s, compensation would have to be reduced by 10% and additional damages suffered by the grantor “should the cause of termination be a breach of ASPI’s obligation under the concession”.

In any case, ASPI is entitled to manage the motorway until it receives the compensation payment. Moody’s added: “It is likely that the amount of compensation under a termination scenario would have to be negotiated, which could potentially lead to protracted discussions, initiation of a court case and delays in the actual receipt of the compensation.”

A much cheaper option, according to an infrastructure lawyer contacted by Inframation, is revoking only the concession for the A10 stretch.

This would allow the government to hold to its promise of stripping ASPI of control of the new bridge, which would be rebuilt by companies chosen by the state (but with ASPI’s money) and either operated by government road agency ANAS, or by another private investor. “But there is just one concession contract for the entire network managed by ASPI, so it’s difficult to see how they would do this,” the lawyer said. He added, however, that the government might still be willing to opt for a solution like this, which is easier than a full contract termination.

Government moves
On 13 September, the government passed a decree to speed up the bridge reconstruction, which is essential to mobility in and around Genoa. The draft decree specifies that ASPI will need to provide financial resources for the reconstruction within 30 days from the request of the government. According to local press, the government is also trying to include some measures regarding revoking the concession, before the decree is published on the Italian Official Gazette. The publication was due on Friday (21 September) but has been postponed by a few days.

In the meantime, the government is yet to appoint a “commissario” tasked with overseeing the reconstruction. Government officials and even prime minister Giuseppe Conte have said they do not want ASPI involved in the reconstruction. But not having appointed a commissario yet has been seen by some market commentators as a sign of conflict within the government about what exact role it wants Atlantia to play in the process.

Meanwhile, a government-appointed commission to investigate the causes of the collapse is also likely to delay the publication of its initial findings. This is because three of the six commission members appointed by the government on 16 August have already resigned, including president Bruno Santoro, a Ministry of Transport official, after it emerged that he is among those under investigation for the bridge collapse, according to Italian media.

The Genoa public prosecutor sent formal notifications of investigations earlier this month to Santoro as well as others, including several ASPI managers. ASPI has responded by saying that it intends to fully cooperate “to ascertain the causes and dynamics of the event,” but has rejected allegations of not investing enough in maintenance, which is what government officials believe determined the collapse.

Triggered by government threats, the losses for ASPI and its parent company have already been significant.

Rating agencies have put Atlantia on review for downgrade. According to Moody’s, the downgrade would materialise if the “Morandi bridge appeared likely to result in a material detrimental impact on Atlantia’s financial profile” or “as a consequence of a termination of ASPI’s concession or materially detrimental government actions linked to a termination scenario.”

Atlantia’s share price dropped as low a EUR 17.20 in recent weeks from EUR 23-24 before the incident, reaching levels not seen since 2014. Its acquisition of Abertis is unlikely to be affected though, as the deal is agreed and banks have signed a financing package, according to people with knowledge of the situation.

ASPI will need to book a loss of revenues in its future financial results, because that stretch of road is no longer available. But the biggest damage has been to its reputation.  

To systematically respond to accusations raining down from all parts, ASPI launched on 18 September a “transparency project”, providing factual data and information about works done on the bridge, but also the maintenance works undertaken and the investments made on its entire network.

In response to a claim of having under-invested in the network, it said it has invested more than EUR 5.14bn in maintenance on its motorway network between 2000 and 2017, almost EUR 200m higher than what its concession agreement requires. It also provided the findings of a study by AISCAT, the Italian road concessionaire association, which reveal it has invested five times more than government-controlled motorway agency ANAS on road maintenance per km in the 2013 – 2017 period.

Regarding the Genoa bridge specifically ASPI claims it conducted significant works over the past three years, an average of five days of work per week. No figure could be found for specific maintenance spend on the bridge before its collapse, but the company has said it had committed to invest EUR 26.9m last year for the retrofitting of the bridge.

It also said its maintenance expenses are three times higher than in Spain and France. Responding to criticisms that its tolls are higher than its European peers, it provided figures to prove, at 7.44 cents per km, they are actually lower compared to the European average: 8.73 cents in France, 8.37 in Portugal and 12.13 in Spain.

Knock-on impact
Despite all government announcements to the contrary, experts agree it will take some time to complete any process aimed at revoking the ASPI concession, and teams of lawyers have been at work on both sides.

Once the government-appointed commission submits its evaluation, ASPI will have a period of at least three months to reply. During this time, ASPI can present its own view and make objections. If its objections are rejected, then ASPI will have two more months for a counter-reply. Only at the end of this period, the government can go ahead with its plan to withdraw the concession by issuing a decree for terminating the concession. According to this timeline, a decree might be issued only in 2H19.

Aside from the massive implications on Atlantia, ASPI and their shareholders, this event has also raised question marks about Italian infrastructure more generally, as the government has been vocal about its intention to revise concessions to force concessionaires to invest a bigger part of their profits on the motorway assets they operate.

Future measures may not only affect ASPI, the largest operator, but also others.

Current Italian road operators include Gavio Group, an infrastructure group which has concessions in northern Italy including Autostrada dei Fiori, which manages another stretch of A10. Gavio has recently joined forces with Ardian Infrastructure, which is increasing its focus on Italy. Other major Italian road assets include the A4, part-owned by Abertis and therefore soon to be controlled by ASPI; Strada dei Parchi, which is controlled by Italian developer Toto; and a number of other publicly or privately managed assets.

The collapse of the bridge has also trigged a wider debate about improving safety on the country’s motorways and investing more in these assets’ quality.

On 18 September, officials for the Abruzzo Region held a hearing with the management of Strada dei Parchi, the concessionaire of the A24 and A25 motorways. These roads are operated in an area hit by major earthquakes in 2009 and 2016 and improvements are badly needed. Discussions are ongoing regarding a refinancing of the company’s debt, but before a refinancing can take place, authorities and the concessionaire need to agree on a new economic plan with major capex commitments for improving the roads. However, the government has recently said it is willing to provide EUR 200m towards such improvements.

In the meantime, political attacks and talk of stripping a company of its concession before full investigations are carried out could undermine the principle of “legal certainty” in Italian law, according to a lawyer. Trying to unilaterally change a contract agreed years ago would be detrimental to any local and international investors willing to assess opportunities in the Italian infrastructure sector in the future. He said: “They would think twice about the type of assets they will want to put their money in.”

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