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21 Dec 2010
London, 21 December 2010 -- Moody's has today placed the following ratings on review for possible
downgrade, (1) the A2 rating of ANA-Aeroportos de Portugal,
S.A, ("ANA"), (2) the A3 rating of Comboios
de Portugal ("CP"), (3) the A1 rating of Parpública-Participacoes
Publicas (SGPS), SA, ("Parpública"),
(4) the A1 rating of Rede Ferroviaria Nacional REFER, EPE,
("REFER") and (5) the A3 rating of Redes Energeticas Nacionais,
SGPS, S.A. ("REN"). In addition,
the A3 rating of Energias de Portugal, S.A. ("EDP")
and its finance subsidiary, EDP Finance B.V.,
and the provisional Baa2 rating of the proposed issuance of Subordinated
Fixed to Floating Rate Notes by EDP, have been placed on review
for downgrade. The Prime-2 rating of EDP and EDP Finance
B.V is affirmed.
All of the above companies are government related issuers which have an
element of potential government support incorporated within their ratings
in accordance with Moody's rating methodology for government related issuers.
The above actions follow Moody's earlier rating action to place on review
for possible downgrade the A1/Prime-1 ratings of the Government
of the Republic of Portugal ("Portugal"). The main triggers for
the review for downgrade include: (1) Uncertainties about Portugal's
longer-term economic vitality, which will be exacerbated
by the impact of fiscal austerity; (2) concerns about Portugal's
ability to access the capital markets at a sustainable price; and
(3) concerns about the possible impact on the government's debt
metrics of further support for the banking sector, which may be
needed for the banks to regain access to the private capital markets.
Moody's believes that these concerns warrant placing Portugal's
ratings on review for downgrade and says that the rating could be adjusted
downwards by a notch or two.
ANA's A2 rating comprises a view of the fundamental credit quality
of ANA represented by a Baseline Credit Assessment ("BCA")
of 7 (equivalent to A3), and a 1-rating notch uplift for
the likelihood of extraordinary support being provided by Portugal in
the event that this were ever to be required to avoid a default,
as assessed in accordance with Moody's rating methodology for Government
Related Issuers. While rating uplift from ANA's BCA is modest,
a downgrade in the rating of Portugal to A3 would question whether it
was still appropriate to provide a 1 rating notch uplift to ANA's
BCA. Consequently, the review for downgrade will be concluded
following the conclusion of the review for downgrade of the Portugal rating.
ANA is considered well positioned in its A3 equivalent BCA. ANA
has continued to perform well during a difficult European economic environment,
and with passenger growth of 8.1% in the 10 months ending
October 2010, following only modest declines in 2009, is one
of the best performing major airport companies in Europe. This
robust performance evidences ANA's diversified exposure to a number
of economies and highlights its somewhat moderate reliance on the domestic
Portuguese economy. ANA's BCA is supported by (1) ANA's monopoly
of the Portuguese airport system and its robust competitive dynamics,
(2) its rate charging mechanism which is subject to a new framework of
economic regulation, (3) a moderate capital expenditure programme
across the present airports network, and (4) moderate debt leverage,
which would suggest that it is capable of sustaining a BCA at least as
high as that of Portugal, should the rating of Portugal fall to
CP is the main railway operator in Portugal, controlling 90%
of the passenger market, is 100% owned by the Portuguese
Government though the Ministry of Finance, and in FY2009 reported
revenues of EUR312 million. In accordance with Moody's rating
methodology for Government Related Issuers, CP's A3 rating
reflects the following combination of inputs: (1) A BCA of 17 (Caa1
equivalent), (2) the A1 (on review for downgrade) rating of Portugal,
(3) Very High Dependence, and (4) Very High Support. CP's
A3 rating is two notches below that of its 100% owner, Portugal.
Despite CP's weak standalone financial profile, the A3 rating reflects
its close links to the government and Moody's expectation that the Portugal
would step in with timely extraordinary financial support if required,
despite the lack of an explicit guarantee. As a result of that,
a review of the rating of Portugal translates into a review of the rating
of CP. The rating agency expects that CP's rating will move
in line with Portugal's rating, therefore the review will
not be concluded before Moody's review of Portugal's ratings
EDP is the country's largest vertically integrated utility.
Its current A3 rating benefits from a one notch uplift from its current
standalone credit profile for government support, as expressed by
its BCA of 8 (equivalent to a Baa1), in light of its 25.75%
direct and indirect government ownership. The review will consider
whether this one-notch uplift is still warranted in the context
of (1) a potential downgrade of Portugal, (2) the strength of potential
extraordinary support in the light of pressures on the government and
the possible risk of further privatisation. It will also consider
the company's stand-alone strength and any potential impact
on EDP's business and financial risk were the sovereign to be downgraded.
Moody's points out, however, that EDP is a broadly-diversified
company with a significant proportion of regulated businesses under mainly
well-established regulatory regimes; in addition to Portugal,
it has operations in Spain, the US and Brazil. As at 30 September
2010, EDP had secured liquidity into 2012.
Although Parpública does not enjoy explicit guarantees from Portugal,
its rating is in line with the rating of Portugal. The rating is
based on our assumption that this entity will remain a key instrument
for the Portuguese government's public sector management policy.
In addition, Parpública is regarded by law as equal to the
state through the parent-subsidiary relationship defined in Articles
501 to 503 of the Portuguese Commercial Companies Code (Código
das Sociedades Comerciais). This stipulates that, in the
event of default, the parent is ultimately responsible for the debt
of its subsidiaries as long as they are 100% owned by the parent.
Parpública is a Portuguese fully state-owned entity that
acts as a holding company responsible for the management of equity stakes
and real estate assets held by the Portuguese state in domestic companies
of public or strategic interest. As a holding company incorporated
in the form of a joint stock company, Parpública is subject
to the applicable commercial law governing holding companies, including
Decree-Law 495/88, as well as the Portuguese Companies Code.
The legislative framework also includes the Legal Regime of State-Owned
Companies and the State's Entrepreneurial Sector (Decree-Law
300/07), and the Portuguese Civil Code Article 501, which
refers to private management by the state. Parpública's
main role is the management of equity stakes held by the Portuguese state
in Portuguese companies of public or strategic interest, specifically
in terms of the restructuring of the corresponding sector. Parpública's
direct main equity holdings portfolio has a book value of some EUR7bn.
The company's largest holdings are: (1) EDP, (2) ANA,
(3) GALP Energia (utility company); (4) REN, and (5) Águas
de Portugal (AdP) (water and waste management company).
REFER's rating is at the same level as its owner Portugal.
Moody's would expect REFER's rating to remain close to that
of Portugal and to move in line with the Portugal rating, therefore
the review will not be concluded before Moody's review of Portugal's
ratings is complete. In accordance with Moody's rating methodology
for Government Related Issuers, REFER's A1 rating reflects
the following combination of inputs: (1) A BCA of 17 (Caa1 equivalent),
(2) the A1 (on review for downgrade) rating of Portugal, (3) Very
High Dependence, and (4) Very High Support. The BCA,
which expresses a view of the fundamental credit quality of REFER,
has been lowered from 15 to 17. This reflects Moody's view
that REFER, on a standalone basis, would be increasingly challenged
to cover its financing requirements given the constraints in the debt
markets and increased debt costs in Portugal. REFER has a very
weak financial profile and a debt burden which is substantially more than
can be supported by generated cash flow. REFER has significant
funding requirements over the next 12 months to meet interest expense,
its capital expenditure programme, and debt refinance requirements.
In addition REFER has a poor liquidity position given its a large financing
requirements relative to available committed liquidity support.
A material part of this liquidity support comes in the form of a EUR500m
committed bank loan facility which is available for drawing until August
2011. Consequently, REFER is increasingly exposed to debt
REN is the exclusive long-term concessionaire of Portugal's mainland
high-voltage electricity transmission grid and the country's high-pressure
natural gas transportation network. REN's A3 rating benefits from
a one-notch uplift for potential government support from its stand-alone
credit profile - as expressed by REN's 8 (Baa1-equivalent)
BCA - in light of the 51% (direct and indirect) ownership
by the Portuguese state and the company's strategic importance associated
with the control of key infrastructures. The rating review will
focus on whether this one-notch uplift is still warranted.
More generally, the rating reviews of the above issuers will also
focus on their individual liquidity profiles and consequent exposure to
Portuguese debt market conditions, and the continued appropriateness
of the level of potential extraordinary government support embedded within
their ratings. A result of the rating review there may be a widening
in the difference between the rating of Portugal and one or more issuers
subject to this rating review.
For additional information on rating factors, please refer to the
individual issuer credit opinions, available on www.moodys.com.
Please see the ratings tab on the issuer / entity page on Moodys.com
for the last rating action and the rating history of each issuer.
The principal methodology used in rating the above issuers in conjunction
with this rating action is Moody's "Government Related Issuers:
Rating Methodology Update", published in July 2010. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found on Moody's website.
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
MD - Infrastructure Finance
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's places ratings of Portuguese government related issuers on review for downgrade
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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