(The following statement was released by the rating agency)
Jan 25 - Fitch Ratings has affirmed Poste Italiane’s (PI) Long-term Issuer Default Rating (IDR) and senior unsecured rating at ‘A-'. Fitch has also affirmed the Short-term IDR at ‘F2’. The Outlook is Negative, reflecting that on Italy (‘A-'/Negative), PI’s sponsor under Fitch’s rating criteria for public sector entities.
PI’s ratings reflect the Italian government’s full ownership and support, its role in channelling funds to public sector and key importance as a provider of universal postal and public-like services such as tax collections and pension payment.
PI has a viable business model where long-term growth stems from its widespread network of 14,000 postal offices, through which it distributes profitable financial and insurance services. This allows PI to cross-subsidise the mature and loss-making postal business and to provide the state with around EUR1.1bn of taxes and dividends. PI’s operations are highly integrated. In its role as service provider, PI receives substantial direct inflows from its financial division Bancoposta, although the latter’s operations were ring-fenced in 2011.
PI has a labour-intensive cost structure which exposes its profitability to the sluggish Italian economic environment. The recent extension of the age of retirement (DL201/2011) has reduced the group’s flexibility in managing labour costs. Fitch estimates these will grow to EUR6.2bn by 2015, from EUR5.7bn in 2011. Under Fitch’s base scenario, the group 2012-2015 EBITDA margin will come down to 8% (2011: 10%) and net profit to EUR600m-EUR700m (2011:EUR846m). However, PI should maintain a conservative financial profile as the Fitch-adjusted debt to EBITDA ratio should remain below 2x over the forecast period.
PI plays an important role in public sector funding. It distributes savings books on behalf of state-controlled entity Cassa Depositi e Prestiti (‘A-’ /Negative) and directly invests deposits collected by its financial division Bancoposta (EUR37bn) in Italian government bonds and deposits with MEF. This investment model exposes the group’s assets and equity buffer to the price volatility of Italian government bonds. Bancoposta’s negative equity of EUR900m in 2011 was restored in 2012, following the progressive reduction of the risk premium on Italian government bonds during the year.
Fitch views investment’ portfolio volatility - and the related impact on equity - as a structural feature of the group’s business model. However, under an orderly downside scenario, potential losses embedded in the portfolio should not impact the group’s income statement. The stability of the deposit base and the liquidity backstop tools available should allow Bancoposta to hold these investments until maturity. If there were large deposit outflows, Fitch believes the state would step in, due to its shareholder role and the systemic importance of Bancoposta.
PI Group has demonstrated the ability to raise funds from national and international banks as well as supranational financial institutions. In 2012, it signed a EUR200m loan with EIB and indirectly accessed to EUR5bn ECB long-term refinancing operation (LTRO) to pre-fund Bancoposta’s reinvestment needs over the next three years.
Fitch expects PI’s debt of EUR2bn at end-2012 - including EUR800m short-term debt covering treasury needs and around EUR530m state-serviced debt- will remain substantially stable over 2013-2015, as PI’s cash flow generation should cover its cumulative investment needs of around EUR2bn. PI’s refinancing needs are relatively moderate over the next 12 months as the largest debt repayment in 2013 is a DEPFA loan of EUR250m due in September 2013. Against these maturities, PI had EUR694m of cash and near cash available at end-2012 and undrawn credit facilities of around EUR1.3bn.
PI’s ratings and Outlook remain equalised with those of Italy and will likely mirror the sovereign ratings and Outlook over the medium term.
Weaker links with the government, such as a material reduction of the state’s equity interest in PI, or an unexpected significant deterioration of PI’s operating performance could also put pressure on the ratings.
The ratings are sensitive to a number of assumptions. Fitch assumes that:
- The Italian government will maintain control of PI.
- PI’s business model will not change in the future and it will continue to provide postal, insurance and financial services.
- Bancoposta’s deposits will remain substantially stable.
- The pricing of intercompany services PI provides to Bancoposta will not be revised downward.
- PI will not carry out large debt-funded acquisitions.