20131212-穆迪服务-Credit_Implications_of_Current_Events_20页_902kb

Credit Outlook Summary - 12 December 2013

Core Content

This document provides a summary of credit implications from recent events across various sectors, including Corporates, Infrastructure, Banks, Insurers, and Sovereigns. It outlines both credit positive and negative developments, along with Moody's Analytics' analysis and outlook for each.

Main Points by Sector

Corporates

• Sysco's $8.2 Billion US Foods Acquisition:
  • The acquisition will increase Sysco's leverage from 1.8x to 3.0x, prompting a review for downgrade.
  • The deal is expected to lead to a downgrade of at most two notches for senior unsecured ratings and one notch for short-term ratings.
  • Long-term benefits include increased scale, pricing power, and potential expense savings. If Sysco successfully deleverages, the combination could be credit positive.
• Gilead Sciences' Hep-C Treatment (Sovaldi):
  • Gilead became the first company to gain FDA approval for an all-oral treatment for hepatitis C, which is a credit positive.
  • The treatment has high efficacy and low side effects, leading to strong demand and potential for substantial sales growth.
  • Gilead is developing interferon-free treatments for genotype 1, which could be approved in 2014.
  • Despite competition from AbbVie and Bristol-Myers Squibb, Gilead is expected to have an edge in the US due to its simple dosing regimen.
• PostNL Sale of TNT Stake:
  • PostNL sold a 50% stake in TNT Express for €507 million, which is a credit positive.
  • The proceeds will be used to reduce debt, improving leverage and liquidity.
  • The sale is expected to reduce PostNL's debt/EBITDA to 4.6x from 5.6x.
  • PostNL has also entered a pension agreement that will limit future pension contributions, further improving creditworthiness.
  • Despite these positives, PostNL's credit metrics remain weak due to ongoing restructuring costs and a challenging operating environment.

Infrastructure

• EDP Energias do Brasil's Hydro Project Sale:
  • EDP sold a 50% stake in two hydro projects for BRL870 million, which is a credit positive.
  • The sale will help EDP meet its BRL450 million debenture maturity in February 2014.
  • The transaction is expected to reduce capital expenditure from BRL1 billion to BRL600 million annually.
  • EDP has also received support from its minority shareholder, China Three Gorges Corporation.

Banks

• Ocwen Financial's Expansion Plans:
  • Ocwen's plans to originate non-prime loans are a credit negative due to increased legal risks and performance volatility.
  • Non-prime mortgages are less liquid and more complex than prime loans.
  • Ocwen is expected to expand into non-prime origination, which may not be sustainable due to banks' advantages in funding and processing.
• Poland's Tighter Mortgage Underwriting Standards:
  • New regulations will limit the maximum LTV ratio for residential mortgages to 95% in 2014, decreasing to 90% in 2015 and 85% in 2016.
  • These changes are credit positive as they improve the quality of new lending and reduce NPLs.
  • The policy is expected to stabilize mortgage supply and reduce high-LTV lending.
• China's NCD Issuance Policy:
  • Chinese banks are now allowed to issue negotiable certificates of deposit (NCDs), which is a credit positive.
  • NCDs offer flexibility and better liquidity, helping banks manage short-term liquidity and obtain long-term funds.
  • The first 10 banks in the self-regulatory pricing mechanism will benefit first from this new tool.
  • NCDs are expected to result in lower yields than interbank deposits due to investor demand.
  • The policy is controlled through annual issuance plans and quota limits to manage funding costs and flows.

Insurers

• China's Enterprise Annuity Tax Incentives:
  • A new tax policy allows individuals to deduct up to 4% of their taxable income for enterprise annuity contributions and makes investment income tax-exempt until retirement.
  • This is a credit positive for Chinese life insurers and securities companies.
  • Life insurers captured 47% of the enterprise annuity market, while securities companies have a larger share through fund management.
  • The policy is expected to boost enterprise annuity growth and increase fee income for securities firms.
  • Life insurers may see additional income of RMB700 million to RMB1.5 billion, depending on asset growth and management fees.

Sovereigns

• Thailand's Early Elections:
  • The dissolution of parliament and early elections are unlikely to resolve the political crisis, which is a credit negative.
  • Anti-government protests are expected to continue due to opposition's rejection of the democratic process.
  • The political instability may have long-term implications for Thailand's credit profile.

Key Information

• Credit Positive Developments:

  • PostNL's sale of its TNT stake and debt reduction.
  • EDP's hydro project sale and improved liquidity.
  • Gilead's FDA approval for Sovaldi and potential sales growth.
  • Poland's tighter mortgage underwriting standards.
  • China's new NCD issuance policy for banks.
  • China's enterprise annuity tax incentives.

• Credit Negative Developments:

  • Sysco's increased leverage from the US Foods acquisition.
  • Ocwen's potential expansion into non-prime loan origination.
  • Thailand's early elections not resolving political instability.

• Ratings Impact:

  • Sysco's ratings are under review for downgrade.
  • Gilead's rating outlook is revised to positive.
  • PostNL's ratings are expected to improve due to debt reduction and pension agreement.
  • EDP's ratings are stable, but its credit metrics remain weak.
  • Poland's banks are expected to see improved credit profiles.
  • China's banks and insurers benefit from the new NCD and annuity policies.

• Future Outlook:

  • Sysco may deleverage over time, leading to credit improvement.
  • Gilead is expected to maintain its leadership in hepatitis C treatment.
  • PostNL may further improve credit metrics by selling its remaining TNT stake.
  • EDP's restructuring program is expected to support a gradual recovery in 2014.
  • The new annuity tax policy may lead to increased demand and better revenue diversification for Chinese insurers.