Reuters logo
Fitch Affirms Region of Piemonte at 'BBB'; Outlook Stable
October 27, 2017 / 8:34 PM / 24 days ago

Fitch Affirms Region of Piemonte at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) MILAN/PARIS/LONDON, October 27 (Fitch) Fitch Ratings has affirmed the Region of Piemonte's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BBB' with Stable Outlooks and Short-Term foreign-Currency IDR at 'F3'. The issue rating on Piemonte's senior unsecured bond has also been affirmed at 'BBB'. The affirmation reflects the balance of Piemonte's continuing weak operating performance, large budgetary deficit and high debt with strong economic fundamentals and an accelerated economic recovery. The Stable Outlook reflects Fitch's expectation of stabilising operating margins over the medium term. The Short-Term 'F3' IDR reflects the region's volatile liquidity. KEY RATING DRIVERS Stable and Predictable Institutional Framework: A solid legislative framework defines Italian regions' responsibilities and revenue predictability, including access to subsidised loans with long maturities from the central government. Tax-raising flexibility is limited, , but the provision of funding for co-shared responsibilities with the central government on healthcare, and the regions' presence in capital markets are incentives for the central government to provide financial support, in case of need. Italy's Regional Stability and Growth Pact requires regions to run a balanced operating budget, which is a further incentive to cost control. Stagnant Performance, Improving Healthcare: Piemonte's 2016 operating revenue, which was supported by VAT and corporate tax, totalled EUR10.6 billion, making the region a positive net contributor to the regional equalisation fund for healthcare expenses (Fondo Sanitario Nazionale; FSN). The national fund totalled EUR111 billion in 2016, of which EUR8.2 billion or 7.4% of total were allocated to Piemonte, which has formally completed and exited a state-tutorship programme started in 2010, which was designed to restore the operating performance of regions with negative healthcare budgets. The normalised status means the region will receive cash from the central government sooner, accelerating settlement of its healthcare-related payables. Fitch expects Piemonte's operating margins in 2017-2019 to be similar to the three-year average of 4%, on the assumption of continued cost control in healthcare and limited tax power. Given its high debt levels, debt servicing is a major drag on resources that would otherwise be available for capital expenditure. Fitch expects that operating margins to be around 0.9x over the next three years, barely covering interest and principal repayments. Given limited scope for self-funded capital spending, Fitch expects future projects may be funded by either a combination of upper tiers funds from the state or the European Union and assets disposals amounting to approximately EUR100 million over the long term. Slowly Amortising Debt: Piemonte's debt burden is high at EUR10.2 billion at end-2016, including EUR4.6 billion treasury loans. Total debt represents roughly 95% of current revenue, although this is partly mitigated by 72% being either subscribed by the Ministry of Finance and Cassa Depositi e Prestiti (BBB/Stable), the central government's main financing arm for local and regional governments (LRGs). Piemonte is currently assessing its issued guarantees. Indirect debt from controlled entities includes EUR289 million with Societa di Committenza Regione Piemonte (SCR), Piemonte's centralised purchasing arm for goods and services and EUR68 million from Finpiemonte. The region's EUR500 million cash balance at end-2016 marked an improvement from 2015's. Fitch will monitor further structural improvements before upgrading Piemonte's Short-Term IDR. Conservative Management: Fitch views positively Piemonte's commitment to fiscal consolidation by addressing the region's cost structure, especially on healthcare, which will continue to exert pressure on expenditure given an ageing population. The successful implementation of a state-monitored healthcare restructuring marks an achievement for the administration and is factored into our assessment. Resilient Economy: Piemonte is one of the strongest manufacturing Italian hubs. It has a large economy with strong socio-economic wealth indicators as reflected by a GDP per head that is 7% higher than the national average and unemployment structurally below the national level (10% in 2016 versus Italy's 12%). After years of slow economic gains, Fitch expects continued improvement in the economy, sustained by rising exports, higher domestic demand and revived investments. The region's manufacturing-related concentration and strong export orientation leave the economy sensitive to external downturns. RATING SENSITIVITIES Sustained decrease in operating margins below 4% in the medium term can drive a downgrade. In particular, relaxation of spending control is a key risk. An increase of direct debt-to-current revenue above 100% is credit-negative. Although Piemonte's rating is aligned with the Italian sovereign, it is unlikely that an upgrade of the latter would result in a higher rating for the region, unless debt servicing ratios see structural improvements (more than 1x) and operating margins strengthen to 6%-8%. KEY ASSUMPTIONS We assume stability in healthcare financing at the national level, which provides for balanced expenditure and equalisation mechanisms among regions. Contact: Primary Analyst Gian Luca Poggi Director +39 02 87 90 87 293 Fitch Italia S.p.A. Via Morigi 6 Milan 20123 Secondary Analyst Federica Bardelli Associate Director +39 02 879087 261 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Stefano Bravi, Milan, Tel: +39 02 879 087 281, Email: stefano.bravi@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below