20170608-穆迪服务-Credit_Outlook_Credit_Implications_of_CurrentEvents_28页_1mb

CreditOutlook Summary

Core Content Overview

This document provides an analysis of credit implications stemming from recent events in the corporate, infrastructure, banking, and sovereign sectors. It outlines both credit positive and negative developments, focusing on financial stability, liquidity, and operational performance.

Main Points and Key Information

Corporates

• Iceland Foods:

  • Announced a partial redemption of £50 million of senior secured floating rate notes due in 2020.
  • The transaction is credit positive, as it reduces leverage from 5.7x to 5.5x.
  • The company has been actively repurchasing notes, with £102 million repurchased since 2014.
  • Positive like-for-like sales growth (2%) and EBITDA growth (6%) in fiscal year 2016/2017.
  • Liquidity is strong, with £143 million cash balance, £30 million undrawn revolving credit facility, and no mandatory debt amortization before 2019.

• Evergrande:

  • Raised RMB39.5 billion from 13 investors in June 2017, bringing total equity fundraising to RMB70 billion.
  • This is credit positive, as it improves liquidity and credit metrics.
  • Cash/short-term debt ratio is expected to rise above 1.2x-1.5x in the next 12-18 months.
  • Adjusted debt leverage is projected to improve from 32% in 2016 to 55%-60% over the next 12-18 months.
  • Interest coverage ratio is expected to rise from 1.4x to 2.0x-2.5x.
  • The company has a strong contracted sales growth (63% YoY in 2017 Q1), which supports cash flow and refinancing.
  • Dividend payout ratio is expected to be at least 68% of net profits from 2017 to 2019.

Infrastructure

• Los Angeles Department of Water and Power (LADWP):

  • Joined the Western Energy Imbalance Market (EIM) in April 2019, which is a credit positive move.
  • The EIM allows better integration of renewable energy and real-time balancing of supply and demand.
  • LADWP expects to reduce power costs and manage demand more effectively.
  • The move supports its 2030 renewable energy target of 50%.

• Gwynt Y Mor:

  • Faced a credit negative outcome due to unrecouped costs from cable failures.
  • Ofgem determined that one cable failure was not an income-adjusting event, leaving £10.2 million in unrecoverable costs.
  • The company has drawn on liquidity reserves to fund repairs, with total repair costs at £24 million.
  • The European Investment Bank's project bond credit enhancement (PBCE) provides £48 million of additional liquidity.
  • Insurance claims and manufacturer warranties are being pursued for cost recovery.

Banks

• BanBajío (Mexico):

  • Conducted a share offering of up to $490 million, a credit positive move.
  • The offering will increase its tangible common equity to risk-weighted assets (TCE/RWAs) ratio to 15% from 12.4%.
  • Supports expansion into small and midsize regional companies and improves corporate governance.
  • The bank's capitalization is expected to help with loss absorption amid rising tail risks.

• Intercorp Financial Services (Peru):

  • Acquired Seguros Sura and Hipotecaria Sura, strengthening its position in the annuities and life insurance market.
  • The acquisition is credit positive due to improved revenue diversification and cost synergies.
  • IFS expects to enhance return on invested insurance premiums.
  • The transaction is likely to be financed via senior international debt.

• Banco Mercantil do Brasil (BMB, Brazil):

  • Ordered to return BRL150 million of capital from its investment banking subsidiary BMI, a credit negative event.
  • The return reduces BMI's capital base by 50%, constraining its operations and reducing potential income.
  • BMB's profitability has been under pressure due to high branch costs and reduced investment income from lower SELIC rates.
  • The one-time tax windfall in 2015 helped boost pre-provision income, but without it, the bank would have reported losses.

• Qatari Banks:

  • Face credit negative implications due to GCC tensions, which affect foreign funding and investor sentiment.
  • Foreign funding accounts for 35% of total liabilities, and the rift could lead to higher funding costs and deposit withdrawals.
  • Qatari government reserves are estimated at 200% of GDP, and it is expected to support banks if needed.
  • Qatari banks have improved liquidity by increasing the proportion of longer-term deposits and reducing reliance on short-term liabilities.

• Abu Dhabi Banks:

  • Implemented cost control measures, reducing employees by 6.8% from 2016 to 2017, a credit positive development.
  • The reduction helps mitigate rising costs and softening revenues.
  • Non-oil GDP growth in Abu Dhabi is expected to slow to 1.9% in 2017, down from 8.6% in 2014.
  • The merger of National Bank of Abu Dhabi and First Gulf created First Abu Dhabi Bank (FAB), reflecting a focus on cost efficiencies.
  • Cost-to-income ratios have improved, with FAB at 30.2%, UNB at 30.9%, and ADCB at 34.4%, below the UAE average of 36.8%.

Summary of Credit Implications

Additional Notes

• The document includes multiple exhibits and financial data, which are referenced but not included in this summary.
• No credit rating actions were announced, and the current ratings are noted for reference.
• The document highlights the importance of liquidity, leverage, and operational efficiency in assessing creditworthiness.