20161205-穆迪服务-CreditOutlook_24页_1mb

Credit Outlook Summary - 5 December 2016

Core Content

This document provides an analysis of credit implications from various current events across different sectors, including Corporates, Infrastructure, Banks, Exchanges, and Insurers. It outlines the credit impact of specific actions and developments, highlighting both positive and negative effects on the creditworthiness of entities involved.

Main Points by Sector

Corporates

• Petrobras' Exploration Block Sale: Petrobras sold an exploration block to Statoil ASA, generating $1.25 billion in proceeds. This reduces its debt and improves liquidity, which is a credit positive.

  • Petrobras has a high debt burden of $123 billion and aims to reduce its net debt/EBITDA ratio to 2.5x by 2018.
  • The company has sold over $10 billion in assets in 2016 and plans to sell $19.5 billion in 2017-18.
  • The sale is a step toward reducing leverage, but the outcome of ongoing US and Swiss investigations could affect its ability to pay fines and maintain liquidity.

• Odebrecht Engenharia e Construção's Leniency Agreement: Odebrecht signed a leniency agreement with Brazilian federal prosecutors, accepting BRL6.8 billion in fines over 23 years. This is a credit positive as it allows the company to resume contract bidding and access financing.

  • The agreement clears legal uncertainties and allows OEC to bid for public E&C contracts.
  • OEC's cash balance has dropped significantly due to Lava Jato investigations, but the leniency agreement provides financial relief.
  • OEC has a $22.9 billion project backlog and has been affected by delays in receivables and foreign-exchange losses.

• Tata Steel UK's Potential Sale of Specialty Steel Business: The sale of the specialty steel business for £100 million is a credit positive for Tata Steel UK Holdings Limited (TSUKH) as it will improve operating performance and reduce the drag on profitability.

  • The sale is part of a broader restructuring effort.
  • The company is also exploring joint ventures with strategic players like thyssenkrupp AG.

Infrastructure

• KEPCO's Renewable Energy Contracts: The Korean government requires KEPCO's generation subsidiaries to enter into 20-year, fixed-price contracts for solar and wind projects starting in Q1 2017.
  • This is a credit positive as it increases the predictability of cash flows and encourages private investment in renewable projects.
  • KEPCO's FFO/debt ratio is expected to remain in the 28%-32% range over the next one to two years.
  • The government aims to expand renewable capacity to 13 gigawatts by 2020, with a focus on solar and wind.

Banks

• Privatizing Fannie Mae and Freddie Mac: This is a credit negative for bondholders due to the risk of funding disruptions and higher debt costs.

  • The GSEs currently have $1.2 billion in capital but are supported by US Treasury commitments.
  • Privatization would require a strong capital base, and the current setup is unlikely to change in the next 12-18 months.

• Italy's Systemic Capital Buffer for Large Banks: The introduction of systemic capital buffers for O-SILs is a credit positive as it increases CET1 capital requirements, improving loss-absorption capacity.

  • The buffers are phased in from 2017 to 2021, with varying percentages for each bank.
  • Banks like UniCredit and Intesa Sanpaolo are already meeting or close to meeting the requirements.

• Greek Banks' NPL Reduction Plan: Greek banks aim to reduce nonperforming loans (NPLs) to 20% of gross loans by year-end 2019, a credit positive.

  • NPLs are currently at 37% as of September 2016, and NPEs at 51%.
  • The reduction is expected to be driven by restructuring, write-offs, liquidations, and collections, but new NPEs are anticipated due to economic challenges.

• Swedish Banks' Synthetic Securitisations Review: The review of synthetic securitisations by SFSA is a credit positive as it increases capital requirements, which strengthens the banks' capital position.

  • Synthetic securitisations reduce risk-weighted assets and regulatory capital but transfer credit risk back to the bank if not managed properly.
  • SFSA is proposing higher capital requirements for synthetic securitisation transactions, which may limit their use in the future.

• Czech Mortgage Prepayment Rules: The new rules allowing penalty-free prepayment up to 25% annually are a credit negative for Czech banks.

  • Borrowers can repay up to 25% of their loan value annually without fees.
  • The cap on early prepayment fees during the fixed interest rate period is set at 1%, or CZK50,000, if the client sells the property after two years.

• Georgia's Mortgage Currency Conversion: Converting dollar-denominated mortgage loans into local currency is a credit positive for banks.

  • This reduces currency risk and improves the banks' financial stability.

• Lebanese Banks' Capital Requirements: Higher capital requirements by the Central Bank are a credit positive for Lebanese banks.

  • These requirements are expected to improve the banks' financial standing and resilience.

Exchanges

• Proposed EU Rules for Central Counterparties: These rules are a credit positive as they enhance transparency and stability in financial markets.
  • They aim to strengthen the regulatory framework for central counterparties.

Insurers

• Allstate's Acquisition of SquareTrade: This acquisition is a credit negative for Allstate.
  • It may increase financial burden and affect the company's credit profile.

Key Information

• Credit Positives:

  • Petrobras' asset sale and debt reduction.
  • Odebrecht's leniency agreement and resumption of contract bidding.
  • KEPCO's fixed-price renewable contracts.
  • Italy's systemic capital buffers.
  • Greek banks' NPL reduction targets.
  • Swedish banks' synthetic securitisations review.
  • Georgia's mortgage currency conversion.
  • Lebanese banks' higher capital requirements.

• Credit Negatives:

  • Privatization of Fannie Mae and Freddie Mac.
  • Czech mortgage prepayment rules.
  • Allstate's acquisition of SquareTrade.

Summary of Credit Outlook

The document outlines a mixed credit outlook with several positive developments in asset sales, legal resolutions, and regulatory changes that improve liquidity and capital positions. However, there are also risks associated with potential privatization, increased capital requirements, and economic uncertainties, which could negatively affect credit profiles. The overall credit outlook is stable for most entities, with the exception of those facing significant debt refinancing challenges or regulatory pressures.