20140710-穆迪服务-Credit_Outlook_Credit_Implications_of_Current_Events_20页_845kb

Credit Outlook Summary

Core Content

This document provides an analysis of credit implications of recent corporate, infrastructure, bank, insurer, and sovereign events. It outlines the credit impacts of various transactions and regulatory changes, offering insights into how these events affect financial stability, profitability, and risk profiles of the entities involved.

Main Views and Key Information

Corporates

• Archer Daniels Midland (ADM):

  • Acquired WILD Flavors GmbH for €2.3 billion, increasing its debt burden.
  • The transaction is credit negative as it raises debt/EBITDA ratio and reduces cash on hand.
  • ADM will create a new business unit, boosting revenue and margins.
  • The deal may signal future acquisitions, which could further strain its credit profile.
  • Affirmed ratings after the deal, indicating confidence in ADM's long-term financial health.

• Philips:

  • Healthcare division's second-quarter EBITA is expected to decline by 34.9% to €220 million.
  • The decline is credit negative, as it falls below expectations even after accounting for known issues.
  • The company anticipates improved performance in the second half of 2014.
  • EBITA coverage and debt/EBITDA ratio are expected to be at the lower end of the anticipated range.
  • Negative rating pressure is likely if margins remain below double-digit for over 12-18 months.

Infrastructure

• Tata Power Company (TPC):
  • Sold a 5% stake in PT Kaltim Prima Coal (KPC) and its 30% stake in KPC's associated power infrastructure companies for $250 million.
  • The sale is credit positive as it will reduce TPC's consolidated debt.
  • Expected to improve TPC's reported debt/book capitalization to just below 70% in fiscal 2015.
  • Free cash flow to interest coverage is expected to rise above 1.7x in fiscal 2016.
  • Delay in previous divestiture suggests possible delay in this transaction as well.

Banks

• Hungary's Retail Loan Law:

  • New law increases loss expectations for banks due to retroactive voiding of exchange rate margins.
  • Estimated compensation payments to retail borrowers could reach €2.6 billion.
  • This would reduce the banking sector's capital adequacy ratio from 17.4% to 12.5%.
  • Credit negative for Hungarian banks, particularly OTP Bank, FHB Mortgage Bank, Erste Bank, and Kereskedelmi & Hitel Bank.
  • The law is part of a series of measures aimed at addressing household foreign currency debt.

• Philippine Real Estate Stress Test:

  • New stress test requires banks to assume a 25% write-off of real estate exposures.
  • Minimum CET1 ratio is set at 6% and total capital ratio at 10%.
  • Credit positive for Philippine banks, as they are well-positioned to meet these requirements.
  • The stress test encourages more disciplined real estate lending and prevents over-credit to the sector.
  • Banks with high real estate exposure, such as PNB and MBT, may need to maintain higher capital buffers.

Insurers

• ACE Limited's Acquisition of Itaú Seguros' Corporate Insurance Division:

  • ACE acquired Itaú Seguros' corporate insurance business for BRL1.5 billion.
  • The transaction is credit positive for Itaú Seguros as it reduces exposure to volatile claims.
  • Itaú Seguros will retain more stable and less volatile lines of business, such as life and personal accident insurance.
  • The deal supports Itaú Seguros' position in the Brazilian market and aligns with its focus on high-margin retail products.

• German Life Insurance Reform:

  • Reform restricts life insurers from paying dividends if their ability to meet guarantees is at risk.
  • This is credit negative for holding companies as it limits their access to insurer profits.
  • The reform also reduces the deferral of acquisition costs to 2.5% of premiums from 4%, increasing initial costs and lowering profits.
  • Insurers will face credit negative impacts due to reduced sales and profitability in the short term.
  • However, the reform is credit positive for the most vulnerable insurers in a prolonged low-interest rate environment.

Sovereigns and Public Finance

• China-Korea Free Trade Agreement:

  • Credit positive for both countries, as it is expected to enhance economic ties and trade flows.

• Illinois Pension Reform:

  • The Illinois Supreme Court cast doubt on recent pension reform efforts.
  • This is credit negative for the state, as it may undermine the financial stability of public pension funds.

Recent Updates

• The document references recent articles from the previous Monday's Credit Outlook.
• It also links to the Weekly Market Outlook for further financial insights.

Summary of Credit Impacts