London, 15 December 2011 -- Moody's Investors Service has today assigned a local and foreign-currency
long-term issuer rating of A1 to the French overseas Region de
la Reunion (la Reunion). The outlook on the rating is stable.
RATINGS RATIONALE
The A1 rating assigned to Region de la Reunion reflects the sound financial
performance recorded by the region balanced by some volatility in its
financial results over the past five years -- the latter mostly driven
by the large capex programme implemented by the region during that period.
While la Reunion currently benefits from a moderate debt level and a solid
cash position accumulated in recent years, Moody's expects
these to rapidly deteriorate going forward, in line with the anticipated
development of sizeable investment projects in the region's territory.
La Reunion currently benefits from a good financial position, recording
operating surpluses averaging 43% of its operating revenue in each
of the past five years. The recent completion of large capex programmes,
including the multi-annual programme on the "Route des Tamarins"
has enabled the region to drastically reduce its capex since 2009.
Consequently, the region built up a solid cash position at year-end
2010, which Moody's regards as a credit positive ahead of
the implementation of large-scale capex programmes going forward.
In the next few years, la Reunion will launch significant development
programmes including the "Route du Littoral", a major
project which is expected to cost up to EUR1.6 billion, with
the completion date scheduled for year-end 2020. "The
projects to be implemented going forward are sizeable, and the region's
efforts to remain within budget will prove challenging," notes
Nicolas Fintzel, lead analyst for Region de la Reunion. "However,
the budget for the period 2009-10 was managed efficiently,
and the region has recorded strong budget surpluses while securing a large
portion of future capex funding, which Moody's regards as
a positive feature in the current environment," adds Mr Fintzel.
At year-end 2010, la Reunion recorded moderate debt levels
(by national and international standards) at around 84% of its
operating revenue. Moody's highlights that the region's
future debt metrics will deteriorate rapidly, in line with the size
of its capex programmes. The rating agency points out that la Reunion's
current rating reflects these planned capex programmes according to their
anticipated 'all-included' costs. Moody's
considers that any substantial deviation in the region's capex programme
costs from the rating agency's baseline scenario will most likely
have negative consequences on the rating agency's assessment of
la Reunion's creditworthiness.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's would view positively a stabilisation of la Reunion's
financial performance over the medium term, leading to continued
strong operating surpluses and limited need for new borrowings,
thereby stabilising debt stock to a moderate level.
A greater-than-anticipated deterioration in la Reunion's
finances, leading to higher recourse to debt, would exert
negative pressure on the region's rating. Another key credit
negative for the region is the likelihood of any significant overspending
from the current funding forecast for the "Route du Littoral",
which would significantly widen the funding gap to be met by the region
and drive up debt ratios.
PRINCIPAL METHODOLOGIES
The methodologies used in this rating were Regional and Local Governments
Outside the US published in May 2008, and The Application of Joint-Default
Analysis to Regional and Local Governments published in December 2008.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
La Reunion is a French overseas region and one of France's 27 regions,
with the same status as any other region situated on the mainland.
The island has a population of about 833,000 inhabitants and is
located in the Indian Ocean.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
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The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Nicolas Fintzel
Associate Analyst
Sub-Sovereign Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
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Moody's assigns A1 rating to Region de la Reunion
