Uncertainty has dogged the monoline insurers backing the project in the aftermath of the financial crisis. Financial Guaranty Insurance and Syncora have been forced to work on restructuring plans.
Moody’s said the rail consortium’s financial profile would be weaker due to higher long-term funding costs related to uncertainty over the monoline insurance market.
It pointed out Reliance Rail’s original financial forecasts were based on the availability of AAA-wrapped debt. ”This raises considerable uncertainty which is not consistent with the ratings remaining at investment-grade levels,” it said.
Reliance Rail, which is 49 per cent owned by the maker of Sydney’s Millennium trains, Downer EDI, sought to allay fears about the project’s financial stability. Shares in Downer closed down 20c at $7.88.
The consortium chief executive, Terry Kearney, said there were ”plans in place to manage its commercial arrangements should the position of its financial guarantors change”.
But in a veiled warning, the Transport Minister, David Campbell, said Reliance Rail and Downer had obligations under the contract ”and the government expects these to be met”. The first train is due to enter service late this year. Downer last week dismissed suggestions that changes to its senior management were a sign the contract faced difficulties.
The head of rail, Guy Wannop, was shifted from the project and responsibility for it has been handed to Downer’s former chief financial officer, Peter Reichler.
Moody’s raised concerns about the project early last year when it discovered it was running five months late due to a slower-than-expected design approval process.
Reliance Rail outsourced carriage building to Changchun Railway Vehicle Company in China, which has little experience supplying a developed country. Its carriages run in Iran, Pakistan, Zimbabwe and North Korea.