穆迪-全球-信贷市场-当前事件的信贷影响-20180111-19页_900kb

Credit Outlook Summary

Core Content

This document provides an analysis of credit implications arising from current events, focusing on corporate, banking, sovereign, and public finance developments. The key areas discussed include corporate acquisitions, financial strategies, regulatory changes, and sovereign financial conditions.

Main Points

Corporates

• Celgene's acquisition of Impact Biosciences (Credit Positive)

  • Celgene (Baa2 stable) acquired Impact Biosciences for $1.1 billion upfront and potential contingent payments of $1.25 billion.
  • The acquisition is credit positive due to the potential commercialization of fedratinib, a bone marrow cancer drug in final testing, which could strengthen Celgene's position in blood cancer treatment.
  • The transaction is structured with contingent payments based on regulatory approval, reducing exposure to approval risks.
  • The deal will not involve incremental debt and is relatively modest compared to Celgene's $12 billion cash and investments as of 30 September 2017.
  • Celgene's financial leverage is moderate, with gross debt/EBITDA at 2.4x as of 30 September 2017, and expected to decline with strong earnings growth.

• Debenhams' weak Christmas results (Credit Negative)

  • Debenhams (B1 stable) reported negative sales growth for the 17-week period ending 30 December 2017 and warned of a decline in profit before tax for fiscal 2018.
  • The company's organic like-for-like sales in constant currency declined by 1.8%, with UK sales down 2.6%.
  • Gross margin is expected to fall by 150 basis points due to discounts and weak demand, leading to a 37% decline in profit before tax.
  • The downgrade to B1 reflects an increase in Moody's-adjusted debt to EBITDA to 6.4x from 5.7x.
  • Positive factors include digital sales growth, new store formats, and international sales, but these are not enough to offset the negative impact on UK full-price sales.

• Cecina's recent asset sales (Credit Positive)

  • Cecina (A3 negative) sold assets worth €571 million, including preliminary agreements.
  • These sales are part of a broader disposal program following the acquisition of Eurosic S.A. in June 2017.
  • Proceeds are expected to reduce leverage, with the Moody's-adjusted gross debt to total assets ratio declining to 42.2% from 44.0% as of 30 June 2017.
  • The company aims to achieve a loan-to-value ratio below 40% by the end of 2018.
  • Timely execution of the disposal program is crucial for maintaining the A3 rating.

• China's railway infrastructure spending (Credit Positive)

  • China's government announced RMB732 billion in railway infrastructure spending for 2018, slightly lower than previous years but still significant.
  • This will benefit China Railway Construction Corporation Ltd. (CRCC, A3 stable) and China Railway Group Limited (CRG, A3 stable), which hold 45%-50% market share in the railway construction industry.
  • CRCC and CRG are expected to see revenue growth of 6% in 2018 and 5% in 2019, with stable EBITDA margins.
  • Debt levels are expected to remain in the 4.5x-5.0x range due to strong earnings offsetting higher debt for investments.

Key Information

Banks

• Tanzanian authorities' stricter bank regulation (Credit Positive)

  • The Bank of Tanzania revoked licenses of five community banks and placed them under liquidation.
  • This action is credit positive as it signals a stronger regulatory stance, promoting sector consolidation and reducing the risk of small bank failures.
  • Larger banks like CRDB Bank Plc and NMB Bank PLC are expected to remain unaffected due to strong capital and profitability.

• China's implementation of Basel Committee framework (Credit Positive)

  • The China Banking Regulatory Commission introduced new rules to manage large exposures, reducing shadow banking risks.
  • The lookthrough approach will be applied to investments in structured products, limiting aggregate exposure to 15% of Tier 1 capital by 2018.
  • The new rules also cap credit exposure to single customers and groups of connected customers, enhancing risk management.

• China's tighter regulation on entrusted loans (Credit Positive)

  • New guidelines prohibit banks from using their own funds or lending to finance entrusted loans.
  • These rules are expected to reduce contingent liabilities and close potential loopholes.
  • Asset management products are now more strictly regulated, with a broader definition than before, preventing banks from circumventing the rules.

Sovereigns

• Pakistan's US aid cut (Credit Negative)
  • The US suspended security-related aid to Pakistan, which has a limited fiscal impact.
  • However, broader aid cuts or deterioration in US-Pakistan relations could strain finances and have a negative credit impact.
  • US aid to Pakistan has historically been less than 1% of GDP, but the loss of aid may affect the country's economic stability if other donors also reduce support.

US Public Finance

• Texas' post-Harvey reconstruction and energy market (Positive Impact)
  • Post-Harvey reconstruction and a strong energy market are expected to boost sales tax revenue in Texas.
  • This could improve the state's fiscal position and credit profile.

Recent Updates

• Articles in Last Monday's Credit Outlook
  • The document references recent credit outlook articles and encourages readers to visit the sister publication for more detailed market analysis.

Conclusion

The summary highlights a mix of credit positive and negative developments across corporates, banks, and sovereigns. Acquisitions and asset sales are generally viewed as credit positive if they reduce leverage and improve financial positions. Conversely, increased leverage, weak sales performance, and regulatory challenges can lead to credit negative outcomes. The document also emphasizes the importance of regulatory changes in shaping credit risk profiles, particularly in China and Tanzania.