citi, page-2

It is much tighter SP range than I expected but we still have 4.5 hours to go.

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Downer says it is on track
PHILIP WEN
June 3, 2010

DOWNER EDI has denied it will need to inject further equity to support the consortium tasked with delivering 626 train carriages for Sydney's rail network.

Downer's announcement it would write $190 million off its Waratah train project triggered a heavy fall in its share price on Tuesday, sparking fresh concerns about the engineering firm's exposure to $357 million of Reliance Rail debt.

The new man tasked with overseeing the project, Downer's group ventures chief executive Peter Reichler, said even in the worst-case scenario there would be no legal obligation for Downer to provide funds to Reliance.

''It might result in higher funding costs [to refinance the debt] but I don't see a funding shortfall as simply as other people do,'' he said. ''There is no legal obligation on Downer or any other equity party to contribute or to support Reliance Rail.

''We invested $67 million in Reliance Rail. This is the capital that we have at risk.''

Downer draws down on Reliance funds to pay its contracted manufacturers. Mr Reichler said he expected to be able to draw down on the $357 million facility in December 2012, a six-month delay.

Reliance - 49 per cent owned by Downer - was set up in 2006, using third-party monoline insurers to issue $2.3 billion of AAA-rated bonds. The effects of the financial crisis saw Reliance's debt rating drop nine notches to BBB-.

''The global financial crisis exposed material weaknesses in the monoline model, leading to rating downgrades and significant restructuring the fairies disappeared out the bottom of the garden and we are where we are,'' Mr Reichler said.