December 4, 2017 / 2:20 PM / a year ago

Fitch Affirms La Poste at 'A+'; Outlook Stable

(The following statement was released by the rating agency) PARIS, December 04 (Fitch) Fitch Ratings has affirmed La Poste's (LP) Long-Term Issuer Default Rating (IDR) at 'A+', and Short-Term IDR at 'F1'. The Outlook is Stable. Fitch has also affirmed all senior unsecured debt ratings at 'A+'/'F1'. A full list of rating actions is at the end of this commentary. The affirmation reflects the unchanged links between LP and the French state (AA/Stable/F1+). Fitch views LP as being credit-linked with the French state and applies a top-down rating approach from the sovereign. This is attributable to LP's strong strategic importance to and strong control by the state and, to a lesser extent, the entity's legal status and integration with the government. The two-notch rating difference reflects the lack of solvency guarantee and timely liquidity support from the state and support limitations resulting from EU competition law. Fitch does not expect its new government-related entities (GRE) rating criteria exposure draft, published on 27 November 2017 to affect La Poste's rating-approach and two-notch rating difference with the French state if the final criteria are substantially similar to the exposure draft. KEY RATING DRIVERS Legal status (Midrange): The 2010 postal law turned LP from a public agency into a state-owned public limited company. The French postal law required LP to be fully owned by public-sector entities, with the French state as the mandatory majority shareholder. As of December 2017, LP's shareholders were the state and Caisse des Depots et Consignations (AA/Stable/F1+), with 73.7% and 26.3% stakes, respectively. Strategic importance (Stronger): LP provides key public services such as the universal postal service and regional planning through its extensive post office network. It is also entrusted to provide retail banking accessibility and press distribution. LP also contributes to public-sector funding, through its subsidiary La Banque Postale (LBP; A-/Stable/F1). LP has also evolved into a diversified international group comprising four business units: mail services and parcel delivery (47.4% of turnover in 2016), express delivery in Europe (GeoPost; 26.2%), retail financial services through subsidiary LBP (24%), and digital services (2.1%). Control (Stronger): Oversight is ensured by the state's control over the board of directors and main governance committees. LP's CEO and Chairman of the board is nominated and can be revoked by government decree. LP is controlled by the state's shareholding agency and is also subject to regular audits by the National Court of Accounts and to Parliament's scrutiny. Integration (Midrange): LP is distinct from the French state in terms of its finances and budget. Its debt is not consolidated into France's general government debt. LP can benefit from state financial support only within the limits set by the EU competition regulations as it has been mostly operating in a competitive business environment since January 2011. However, LP is integrated with the state through the number of civil servants it employs (2016: 40% out of a total of around 220,000 employees), and the financial flows between the two through public service compensations granted by the state. The group's financial performance improved in recent years as total operating revenue grew at a faster pace than operating expenditure in 2014-2016. This was mainly attributable to growth in Geopost's turnover, increase in tariffs for mail, and a tight grip over operating spending. In 2016, the group's operating profit was EUR1,028 million and represented 4.4% of total operating revenue, up from EUR719 million and 3.2% in 2014 (Fitch-adjusted). LP's net debt/EBITDA decreased to 2.3x in 2016, from 3.5x in 2013 (Fitch-adjusted; excluding LBP), as a result of the sharp improvement in financial performance and a slight decrease in debt. Gross debt was EUR6,664 million at end-2016, down 8.9% from 2015 (Fitch- adjusted). Debt structure is sound, with a smooth repayment profile, medium-term maturity and low exposure to interest rate risk. Liquidity is sound with EUR3,180 million in cash and liquid assets at end-2016 (end-2015: EUR3,657 million), representing 3.2x debt service. Short-term funding is comfortable, supported by EUR3.5 billion commercial paper programmes, a EUR725m million syndicated revolving credit line and EUR500 million of cumulative credit lines provided by LBP. RATING SENSITIVITIES An upgrade of LP could follow an upgrade of France's sovereign rating or result from evidence of stronger links with the state. The ratings could be downgraded if links between LP and the state weaken due to, among other things, a dilution of control, a decline in strategic importance or a weakening of public service compensations. Regulatory change that would further prevent the state from supporting LP would also be negative for the ratings. A downgrade of the sovereign rating would be reflected in LP's ratings. DATA ADJUSTMENTS La Poste issued on 1 December 2016 USD500 million in deeply subordinated notes at a fixed rate of 5.3% and with a maturity on 1 December 2043. La Poste will have the right to redeem these notes early, starting on 1 December 2023. Fitch assigns a 50% equity content to this issue based on its Non-Financial Corporates Hybrid Treatment and Notching Criteria (see below). Fitch calculates EBITDA excluding LBP's cash inflows and outflows due to the strong differences between LP's corporate and financial activities, but ncludes dividends distributed by LBP to LP as we believe it better reflects the financial position of the group. The rating actions are as follows: - Long-Term IDR: affirmed at 'A+'; Outlook Stable - Short-Term IDR: affirmed at 'F1' - EUR8 billion EMTN programme: affirmed at 'A+'/'F1' - EUR3 billion negotiable European commercial paper (NEU CP) programme: affirmed at 'F1' - EUR500 million euro commercial paper programme: affirmed at 'F1' Contact: Primary Analyst Pierre Charpentier Analyst +33 1 44 29 91 45 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chairperson Guilhem Costes Senior Director +34 93 323 8410 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Non-Financial Corporates Hybrids Treatment and Notching Criteria (pub. 27 Apr 2017) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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