20161208-穆迪服务-Credit_Outlook_Credit_Implications_of_Current_Events_28页_1mb

Credit Outlook Summary

Core Content

This document provides a summary of credit implications arising from recent events in the corporate, infrastructure, and banking sectors, as well as sovereign and securitization developments. It highlights both credit positive and credit negative outcomes, with a focus on financial performance, risk mitigation, and strategic moves.

Main Points by Sector

Corporates

• Mexico's Oil Auctions (Credit Positive):

  • The Government of Mexico held successful auctions for deepwater oil blocks, achieving an 82% success rate.
  • PEMEX partnered with Chevron and Inpex, signaling increased foreign investment in the sector.
  • The auctions are expected to bring $41 billion in new investment over the long-term.
  • These auctions reduce uncertainty around foreign direct investment and energy investment programs.
  • The results indicate a positive outlook for future oil investments, which could have broader economic implications.

• Lukoil's Sale of Diamond Business (Credit Positive):

  • Lukoil sold its 100% stake in JSC Arkhangelskgeoldobycha to JSC Otkritie Holding for $1.45 billion.
  • The sale will reduce Lukoil's net leverage and improve its financial position.
  • The transaction includes the resolution of a long-standing $4.8 billion litigation case, reducing legal risks.
  • Lukoil is focusing on its core oil and gas business and expects to close the deal in Q1 2017.

• Obrascon Huarte Lain's Hotel Stake Sale (Credit Positive):

  • OHL sold a 51%-80% stake in its Mayakoba hotels for €158-€218 million.
  • The proceeds will improve liquidity and reduce financial leverage.
  • OHL's leverage is currently over 20x, significantly higher than the 7.5x-10x range for a Caa1 rating.
  • The sale is part of a larger €300 million asset disposal plan aimed at improving cash flow and reducing debt.

• Fosun's Sale of Ironshore (Credit Positive):

  • Fosun sold Ironshore Inc. to Liberty Mutual Group for $3 billion.
  • The proceeds will be used to pay down debt and fund new investments.
  • The sale is expected to reduce Fosun's market-value-based leverage from 37% to 32%.
  • Ironshore's sale reflects Fosun's strategy to focus on core businesses and improve liquidity.

Infrastructure

• Illinois' Nuclear Subsidy (Credit Positive for Exelon):

  • Illinois approved a 10-year nuclear subsidy of $16.50 per MWh, with a cap of $235 million annually.
  • The subsidy will help Exelon's nuclear plants, particularly Quad City and Clinton, remain operational.
  • It will increase Exelon's after-tax cash flow by about $100 million per year and improve its FFO/debt ratio.

• UK Interest Deduction Cap (Credit Negative for Infrastructure Issuers):

  • The UK introduced a cap on interest deductions for highly geared infrastructure companies, effective April 2017.
  • This will increase tax expenses and reduce cash flow, negatively affecting credit quality.
  • The "Public Benefit Infrastructure Exemption" provides limited relief to certain infrastructure companies.
  • The cap is likely to increase corporate taxes by around £1 billion annually.

• Korea's Nuclear Reactor Restart (Credit Positive for KHNP and KEPCO):

  • Korea's Nuclear Safety and Security Commission approved the restart of four reactors at Wolseong plant.
  • The restart will boost KHNP's revenue and reduce KEPCO's generation costs.
  • The government's support for nuclear power reinforces the credit quality of both companies.
  • The restart is expected to improve KHNP's FFO/debt ratio to 45%-50% over 12-18 months.

Banks

• Bank of Nova Scotia Sells HollisWealth (Credit Negative):

  • BNS sold HollisWealth to Industrial Alliance Insurance and Financial Services Inc.
  • The sale reduces earnings from a stable domestic business and shifts the business mix toward international operations.
  • International operations are viewed as less creditworthy than domestic ones due to geopolitical risks and weaker franchise strength.

• RBS Settlement (Credit Positive):

  • RBS settled most claims related to its 2008 rights issue for £800 million.
  • The settlement reduces litigation tail risk and does not impact the bank's capital position.
  • RBS has also settled other major lawsuits, including those with the US National Credit Union Administration.
  • The resolution of these claims supports the bank's financial stability and reduces future legal exposure.

Sovereigns

• Poland's Economic Slowdown (Credit Negative):

  • Poland's economic slowdown poses risks to potential growth and fiscal outlook.
  • The country's fiscal and economic stability is under pressure, which could negatively impact its credit profile.

• Uzbekistan's Currency Liberalization (Credit Negative for National Bank of Uzbekistan):

  • Uzbekistan proposed broad currency liberalization, which is viewed as a credit negative for the National Bank of Uzbekistan.
  • The move may lead to increased financial sector risks and instability.

• China's Capital Account Pressures (Credit Negative):

  • Latent capital account pressures in China are a credit negative factor.
  • These pressures could affect financial stability and economic growth, leading to a more cautious credit outlook.

US Public Finance

• Orange County Repays Bonds (Credit Positive for City):
  • Orange County, Florida, repaid Orlando's portion of tourist development tax bonds.
  • The repayment is a credit positive for the city, indicating improved financial management and fiscal discipline.

Securitization

• Marketplace Loan ABS (Credit Positive for US Financial Technology Companies):
  • The document suggests that US financial technology companies could benefit from a bank charter for marketplace loan ABS.
  • A bank charter would provide regulatory clarity and support for the securitization market.

Key Information

• Credit Positive Events:

  • Mexico's oil auctions and nuclear reactor restarts.
  • Lukoil's sale of its diamond business.
  • OHL's hotel stake sale.
  • Fosun's sale of Ironshore.
  • Exelon's nuclear subsidy.
  • Orange County's repayment of bonds.

• Credit Negative Events:

  • UK's interest deduction cap.
  • Uzbekistan's currency liberalization.
  • BNS's sale of HollisWealth.
  • China's capital account pressures.

• Other Highlights:

  • The document includes detailed financial data and forecasts.
  • It mentions ongoing legal issues and their potential impact on credit risk.
  • Strategic business decisions are analyzed for their effect on leverage and liquidity.
  • The document is authored by Moody's credit officers and analysts, and it does not announce any credit rating actions.

Conclusion

The summary outlines a range of credit implications from various sectors, emphasizing the importance of foreign investment, legal resolutions, and regulatory changes in shaping the creditworthiness of entities. It also highlights the challenges faced by some companies and governments in maintaining financial stability and the potential for future improvements through strategic asset sales and policy reforms.