Fitch Ratings has placed Tunisia-based construction group Servicom’s National Long- and Short-term ratings of ‘B(tun)’ on Rating Watch Negative (RWN). Fitch has also assigned Servicom a senior unsecured rating of ‘B(tun)’ and simultaneously placed the rating on RWN.
The RWN reflects Servicom’s increased leverage in 2013 to a level inconsistent with its ratings. The business continues to generate negative cash flows, leaving little scope for de-leveraging over the next two years.
Servicom is in the process of raising TND20m of equity, which if successful, should allow leverage to return to levels more consistent with the current ratings and provide some buffer to liquidity.
Under such a scenario, Fitch expects funds from operations (FFO) adjusted net leverage to improve to around 3x in 2014 from 5.2x forecast for FY13. Additionally, the capital increase will provide Servicom with funding flexibility for business growth.
The capital increase, of which TND9.4m will be through a share offering in the Tunis Stock Exchange, is subject to the approval of the financial market authority, Conseil du Marche Financier.
The transaction is expected to be closed in 1Q14. Fitch expects to resolve the RWN once the transaction is completed and following a full review of Servicom’s credit metrics.