Fitch Affirms SEPI at 'BBB+'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed Spain's Sociedad Estatal de Participaciones Industriales' (SEPI) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB+' and Short-Term Foreign and Local Currency IDRs at 'F2'. The Outlook on the Long-Term IDRs is Stable.
The ratings and Outlook mirror those of the Kingdom of Spain (BBB+/Stable/F2) to which SEPI is credit-linked. Fitch classifies SEPI as a credit-linked public sector entity (PSE) under its rating criteria. The links reflect SEPI's legal status as a state-owned entity, and tight control and supervision by the sovereign.
KEY RATING DRIVERS
Fitch considers SEPI's legal status of 100% public ownership as supportive of the entity's credit quality. Established in 1995 by Royal Decree SEPI is a public-sector entity that cannot be made bankrupt or liquidated. In June 2006 its legal status was modified so that it would benefit from state contributions and that all future bond issues would benefit from a state guarantee. In accordance with the terms of the bond SEPI decided in 2015 to exercise the call option on its two bonds totalling EUR90m and maturing in 2025 and redeem its outstanding principal.
Control and oversight by the state underpins SEPI's credit quality. It reports to the Ministry of Finance, which approves its budget and borrowing, dictates its policy design and strategy, and appoints its audit office. SEPI President is also Chairman of the Board of Directors. His appointment was made by the government by Royal Decree, on a proposal from the Minister of Finance and Public Administration. The administrative board is made up of 14 representatives of different ministries, four of them from the Ministry of Finance and Public Administration.
As the sole Spanish body for restructuring public-sector entities, SEPI's mandatory objective is to provide strategic planning and management for public-sector entities and restructure non-quoted companies in its portfolio. SEPI has played a key role in the restructuring of several public companies and privatisation of various large companies. Among the large companies under SEPI's charge is Correos (post office) which employed over 51,000 and reported a profit of EUR193m at end-2014, and Navantia (shipbuilding) with over 5000 employees and a loss of EUR27m in 2014. SEPI has several plans to restructure companies in the challenging shipping sector.
The accounts of SEPI are not consolidated in the accounts of the Spanish government. Funding received from the central government is fairly limited and generally allocated to specific projects agreed with the central government.
SEPI is estimated to have incurred a loss of EUR140m in 2015, in comparison with a EUR545m loss in 2014. Total assets in 2015 amounted to EUR5,153m (EUR5,303m in 2014) while net worth was estimated at EUR2,734m (EUR2,810m in 2014).
Changes to the sovereign's ratings would be reflected in SEPI's ratings.
Furthermore, a dilution of control from the Spanish government or a change in the legal status of the entity with reduced strategic importance of the entity, which we currently view as unlikely, could lead to a downgrade.