November 21, 2017 / 3:16 PM / a year ago

Fitch Affirms CPSCL at 'AA-(tun)'; Stable Outlook

(The following statement was released by the rating agency) PARIS, November 21 (Fitch) Fitch Ratings has affirmed Tunisia-based Caisse des Prets et de Soutien des Collectivites locales' (CPSCL) National Ratings at Long-Term 'AA-(tun)' and Short-Term 'F1+(tun)'. The Outlook is Stable. Fitch classifies CPSCL as being credit-linked to the state of Tunisia (B+/Stable/B) under its rating of public-sector entities criteria. The rating's affirmation reflects unchanged links between CPSCL and the state, including CPSCL's supportive legal status, strong control from the government, its strategic importance to the state and, to a lesser extent, its integration with the state. KEY RATING DRIVERS Legal status (Stronger): CPSCL is a non-administrative public establishment considered as a public company (EPNA; "Etablissement public a caractere non-administratif considere comme entreprise publique"), as per the 31 March 1997 decree. The EPNA status implies that CPSCL cannot be liquidated and that it may only be dissolved by law or by decree. Fitch believes the state would be responsible for its assets and liabilities in such a case. CPSCL is considering the option to change its legal status into that of a specialised financing company. Fitch expects it would remain closely linked to the state and will monitor this possible change of CPSCL's legal framework. Strategic Importance (Stronger): CPSCL is the sole entity in charge of financing Tunisian local and regional governments (LRGs) through loans and as a pass-through entity of government subsidies. It is also technical and legal advisor to LRGs. While Tunisian LRGs may raise their own debt from private lenders Fitch views this as a remote possibility given Tunisian LRGs' poor track record in servicing their debt. The decentralisation process initiated by the Tunisian constitution of 26 January 2014 should be fully implemented following the March 2018 municipal elections. This should lead to a sharp increase in CPSCL's budget and strengthen its strategic importance to the state. Control (Stronger): The Tunisian state exercises tight oversight over CPSCL. The board is chaired by the Ministry of Local Affairs and Environment or one of its representatives, and the majority of the board comprises representatives of Tunisian ministries (Finance, Development and International Cooperation, Equipment and transportation). CPSCL's CEO is appointed by decree. Lending conditions (interest rate, maturity) are determined by a government decree, on CPSCL's board proposal, and annual lending limits are framed by a government's order. Integration (Midrange): CPSCL is financially autonomous and has control over its own assets and budget. Its debt is not consolidated into general government debt, but a significant share of its debt is guaranteed by the state. CPSCL does not pay dividends to the central government, excluding a one-off item in 2016, but instead uses its profits as retained earnings. CPSCL's staff are the state's civil servants. CPSCL's impaired loans represented a high 43.2% of total loans at end-2016, reflecting Tunisian LRGs' low repayment capacity. However, this ratio is progressively declining and mitigated by a growing level of provisions (2016: 36.5% of impaired loans). In addition, the Tunisian state aims to cover a large amount of LRGs' debt in 2018 through a TDN100 million funding package. This would show its commitment to put Tunisian LRGs on a sounder footing and would significantly improve CPSCL's financials. CPSCL has been recording net profits before tax (2016: TDN22.4 million) over the last five years and uses them as retained earnings. As a result, equity represented a high 42.6% of CPSCL's assets at end-2016, up from 33.2% at end-2012. Debt has significantly declined over to TDN172.5 million in 2016 from TDN300.1 million in 2012. As a result, its long-term debt-to-equity ratio significantly declined to 44.1% at end-2016, from 118.6% at end-2012. CPSCL has firm access to foreign institutional lenders. External funding mainly comes from the European Investment Bank (AAA/Stable/F1+) and the Agence francaise de developpement (AA/Stable/F1+). Loans from these entities benefit from the state's first-demand guarantee and accounted for 67% of CPSCL's total debt at end-2016. Excess liquidity (TDN305.4 million at end-2016) provides a significant buffer as it represented 1.8x CPSCL's total debt at end-2016. RATING SENSITIVITIES Changes to CPSCL's legal status, control by the state or strategic importance could lead to a negative rating action. An upgrade or a downgrade of the sovereign ratings will be reflected in CPSCL's ratings. Contact: Primary Analyst Pierre Charpentier Analyst +33 1 44 29 91 45 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chairperson Guilhem Costes Senior Director +34 93 323 8410 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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