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Investing.com -- Moody’s Ratings has placed the credit ratings of Obrascon Huarte Lain S.A. (OHLA), including its B3 corporate family rating and B3-PD probability of default rating, under review for a potential downgrade. The ratings of the existing backed senior secured notes issued by OHLA’s subsidiary, OHL (BME:OHLA) Operaciones S.A.U., have also been put on review for a possible downgrade. Prior to this, both entities had a stable outlook.
The review for downgrade of OHLA’s ratings is due to significant corporate governance risks. These risks include allegations of insider trading, shareholder conflicts over financial management and cash flow forecast, alleged deficiencies in internal controls and conflicts of interest, and limited access to relevant information. Recent events have highlighted these governance issues, such as the disposal of shares by a new shareholder within the 30-day lock-up period mandated by Article 19, paragraph 11 of the Market Abuse Regulation (596/2014).
The governance concerns are worsened by a board dominated by non-independent board members. This follows the recent resignation of four board members who collectively represented 18% of OHLA’s share capital, reducing the number of independent board members to two out of seven. Additionally, OHLA’s history of aggressive financial policies, unsustainable capital structure, and complex corporate framework, further diminishes reporting transparency and complicates the distinction between holding-level and joint venture-level earnings and cash generation.
On February 13, 2025, OHLA completed a complex recapitalization. This transaction addressed a previously delayed coupon payment, significantly reduced its gross debt, and improved its liquidity with around €75 million in net cash proceeds. However, a recent adverse ruling on a road project in Kuwait necessitates OHLA to disburse €39.2 million in guarantees, hastening the need for shareholder liquidity support to meet agreed-upon financial conditions with the providers of OHLA’s bonding lines.
Despite the need for liquidity support, OHLA’s ratings continue to be supported by its strong operating performance and its substantial and diversified order backlog of €8.5 billion, focused on relatively resilient public infrastructure projects in Europe and Americas.
During the review, Moody’s will focus on the timely reporting of audited accounts for 2024 with an unqualified auditor opinion, enforcement of suitable corporate governance and effective internal control measures, and strengthening of OHLA’s liquidity profile through the successful execution of up to €50 million rights issue.
Factors that could lead to an upgrade or downgrade of the ratings will be updated once the review is completed. Prior to the review, Moody’s noted that the ratings could be upgraded if OHLA enhances its liquidity through consistent positive free cash generation and maintains disciplined financial policies. Conversely, the ratings could be downgraded if the liquidity materially deteriorates or if there is a failure to secure an extension of bonding lines.
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