December 21, 2017 / 3:13 PM / a year ago

Fitch Affirms Pymar at 'BBB'; Positive Outlook

(The following statement was released by the rating agency) BARCELONA, December 21 (Fitch) Fitch Ratings has affirmed Pequenos y Medianos Astilleros, Sociedad De Reconversion SA's (Pymar) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB' with a Positive Outlook and its Short-Term Foreign-Currency IDR at 'F3'. The affirmation reflects that there has been no change since the last review in the link between the sponsor (the Spanish government) and Pymar. The Positive Outlook is in line with that of Spain (BBB+/Positive). Pymar has been classified as credit-linked entity and has been notched down by one notch from the rating of Spain. KEY RATING DRIVERS Legal Status Assessed as Weak Pymar is a private company established in 1985 under a royal decree to facilitate the restructuring of small and medium-sized Spanish shipyards. Pymar is wholly owned by 19 small and medium-sized private shipbuilders, whose turnover is generally below EUR100 million. Strategic Importance Assessed as Midrange Pymar's main activities are to issue guarantees to financial institutions and ship owners to enable shipbuilders to access shipbuilding projects and financing, and to promote the shipbuilding sector. Shipbuilding is an important sector in the regions of northern Spain, but has a more limited effect on the overall Spanish economy. It is estimated that small and medium-sized shipbuilders provide direct and indirect employment to about 87,000 people. The sector has a strong reputation in several areas of the shipbuilding industry and specialises in the construction of fishing and offshore vessels, among others. In line with European Union directives and other regulations, the central government has updated laws in 2017 regulating state financial supports on grants to cover interest payments on the loans to build ships and the promotion of innovation, research and development in the shipbuilding sector. These initiatives will be mainly channelled through Pymar. Integration Assessed as Midrange Pymar does not directly receive any subsidies or capital injections from the Spanish government. It provides financial guarantees to banks and ship owners to support the potential liabilities of shipbuilders. Pymar also manages a fund from the central government called the Re-structuring Fund, under operates under EU state-aid regulations. At end-2016, the fund had an outstanding value of EUR282.9 million, compared with EUR170.9 million at end-2013. This large increase was principally due to state injections of EUR104 million. Control Assessed as Strong Despite not being a shareholder, the central government is majority represented on Pymar's board of directors and executive committee, both of which define Pymar's strategy and manage its activities, including the conditions of eligibility of the guarantees issued by the Fondo de Garantias Navales (FGN). The limits on the total value of the guarantees supported by the FGN is stipulated by internal guidelines. The total level of guarantee outstanding fell to EUR28 million at end-October 2017 from EUR908 million at end-2009. The economic downturn had a severe effect on the industry and resulted in a large number of guarantees issued by Pymar being called against its Fondo Patrimonial de Garantias (FPG), which led to the FPG being depleted. The FPG is being wound down and no further guarantess will be issued on the back of the FPG. Pymar created the FGN in 2012 with stricter guidelines on granting guarantees and the limits of those guarantees than those of the FPG. The total value of guarantees issued by Pymar under the FGN cannot exceed 4x the total value of the guarantee fund (under the FPG, this limit was at 7x). Given its limited history, the total amount of guarantees issued at end-October 2017 on the back of the FNG was only EUR18.35 million. This is largely covered by the FGN, whose value was EUR71.18 million at the same date. RATING SENSITIVITIES Pymar's ratings are credit-linked to those of the Spain's. Therefore, any rating action on the sovereign would be mirrored in Pymar's ratings. A downgrade could also follow if there is a change in Fitch's assessment of state extraordinary support. Fitch published an exposure draft "Government-Related Entities Rating Criteria" on 27 November, which would apply to Pymar if adopted as criteria. Further detail can be obtained from the exposure draft. Fitch will accept market feedback until 5 January 2018 at Contact: Primary Analyst Guilhem Costes Senior Director +34 93 323 8410 Fitch Ratings Espana, S.A.U. 601 Av Diagonal Barcelona 08028 Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8407 Committee Chairperson Guido Bach Senior Director +49 69 768 076 111 Media Relations: 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 Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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