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TEXT-Fitch affirms Spain's SEPI at 'BBB'; negative outlook
January 25, 2013 / 12:21 PM / 5 years ago

TEXT-Fitch affirms Spain's SEPI at 'BBB'; negative outlook

(The following statement was released by the rating agency)

Jan 25 - Fitch Ratings has affirmed Sociedad Estatal de Participaciones Industriales’ (SEPI) Long-term foreign and local currency ratings at ‘BBB’ and Short-term foreign currency rating at ‘F2’. The Outlooks on the Long-term ratings are Negative.

RATING RATIONALE

The ratings and Outlook mirror those of the Kingdom of Spain to which SEPI is credit-linked. Fitch has classified SEPI as a dependent public sector entity (PSE) under its rating criteria. The link reflects SEPI’s legal status, tight control and supervision under the sovereign. SEPI is wholly owned by the Spanish state and its objective is to provide strategic planning and management for PSEs and restructuring for non-quoted companies in its portfolio.

SEPI’s liquidity is good albeit declining due to privatisation proceeds mainly being invested in short-term liquid investments. However, these funds are earmarked to fund future contractual labour obligations under various severance packages. Liquidity is enhanced by the group’s portfolio of listed investments with a market value of EUR2.6bn in November 2012.

SEPI’s direct debt is limited, solely consisting of two domestic bonds totaling EUR90m with a repayment option in 2015 which benefit from an explicit state guarantee. In June 2006, SEPI’s legal status was modified so that it could benefit from state contributions and so that any future bond issuance would also benefit from a state guarantee. However, this guarantee does not extend to bank borrowing.

SEPI’s profitability is affected by the negative fiscal contributions to the companies in which it has equity interests and is expected to deteriorate in 2012 and in particular in 2013. However, in the long term this will be dependent on the future rationalisation and restructuring plans of the companies within its portfolio.

In March 2012, the Spanish government approved a plan to restructure and streamline the public sector in Spain. The first restructuring phase included closures, mergers, and sales of public companies. In June 2012, the transfer of the Spanish postal service, Correos, S.A. was formalised and the ownership of Correos’ shares was transferred to SEPI from the Directorate of State Property.

RATING SENSITIVITIES

SEPI’s ratings and Outlooks mirror those of the sovereign. If Fitch’s ratings or Outlook on Spain were to change, SEPI’s ratings and/or Outlook would automatically be affected.

KEY ASSUMPTIONS

The ratings are sensitive to the following assumptions:

-Fitch assumes there will be no changes to SEPI’s legal status

-The sovereign will retain tight control and supervision

-Any future bond issuance will benefit from a state guarantee

The full rating report will shortly be available on www.fitchratings.com.

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