moody's credit outlook - november 18 2013

8/13/2019 Moody's Credit Outlook - November 18 2013

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MOODYS.CO

18 NOVEMBER 2013

NEWS & ANALYSISChinas Third Plenum Policy Statements Are Credit Positive 2 The Sovereign Local Governments Strategic State-Owned Enterprises Large Property Developers Utility CompaniesCorporates 10

New Cholesterol Guidelines Are Positive for AstraZeneca,Negative for Merck

Kimberly-Clark Plans to Spin Off Healthcare Business, a CreditNegative

General Electric Plans to Exit Retail Finance Business Are CreditNegative

Grifols Acquires Novartis' Diagnostics Business Unit, a CreditNegative

China SCE Property's Latest Land Purchase Is Credit Negative BJCL's Stake Acquisition in Juda International Would Be Credit

Positive

AVIC International Subsidiary Equity Placement Is Credit PositiveInfrastructure 18

Brazil Oil Production Outlook Grows, Benefiting DrillshipsBanks 19

M&T Wells Notice and Justice Department Probe Add toCompliance Woes

Rise in Large Brazilian Company Bankruptcies Is Credit Negativefor Brazilian Banks

Eurobank's Capital Increase Plans and Staff Reductions AreCredit Positive

BNP Paribas Acquisition of Minority Stake in BNP Paribas FortisIs Credit Positive

Carige's Postponed Capital Increase Is Credit Negative KBC Group Recognizes Additional Impairment in Irish Mortgage

Portfolio

Sberbank's Five-Year Development Strategy Is Credit Positive ICBC Designation as a Global Systemically Important Bank Is

Credit Positive

China's Capital-Qualifying Bank Debt Guidance Will BenefitSenior Creditors

Insurers

US Insurers See Low Enrollment in Affordable Care Act, a CreditNegative

Sub-sovereigns

Mexican Income Tax Reform Will Relieve States' Spending PressureUS Public Finance

New York Transportation Authority Revises Its RevenueProjections, a Credit Positive

CREDIT IN DEPTHUS Public Finance

Jefferson County, Alabamas debt offering is a non-investment

grade risk. We judge the two liens to be in the B or Ba speculative-grade rating categories, subject to substantial-to-high credit risk.

RATINGS & RESEARCHRating Changes

Last week we upgraded Fortescue Metals Group, Shimao Property,

Bank of America NA, Citibank NA, and 66 European CLO tranchesand downgraded Sophia, Tervita, Morgan Stanley, Goldman Sachs,

JPMorgan, Bank of New York Mellon, State Street Bank and Trust,Arrow Reinsurance, CIBC Mellon Trust, and Northern Trust, among

other rating actions.

Research Highlights

Last week we published on European telecom, China retail, globalpharmaceuticals, global base metals, US for-profit hospitals; banks

in the US, United Arab Emirates, Eastern Europe, Middle East, LatinAmerica, China, Mexico, Russia and CIS; Mozambique, Netherlands,

Portugal, Saudi Arabia, Senegal, South African secondary cities,Rhode Island municipalities, European RMBS and ABS, Australian

RMBS, ABS and covered bonds, and Asian structured finance,

among other reports.

RECENTLY IN CREDIT OUTLOOK

Articles in Last Thursdays Credit Outlook Go to Last Thursdays Credit Outlook
http://www.moodys.com/http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_160219http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_160219http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_160219http://www.moodys.com/


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NEWS & ANALYSISCredit implications of current events

2 MOODYS CREDIT OUTLOOK 18 NOVEMBER

Chinas Third Plenum Policy Statements Are CreditPositiveLast Friday, the leadership of China releasedDecision on Certain Issues Related to the ComprehensiveDeepening of Reform(an unofficial English translationhere), a major policy statement that adds detail to

the broad policy agenda in last Tuesdays communiqufrom the third plenum of the 18thCongress of the

Communist Party of China (CPC). The two documents set specific benchmarks for key social,

environmental and economic reforms. The unfolding policy agenda aims to sustain relatively rapid

economic growth through institutional reform.

In this report, we explain why we believe the policy statements are credit positive for:

the sovereign local governments state-owned enterprises property developers utilitiesChinas Reform Direction Is Credit Positive for the Sovereign

Our interpretation of the back-to-back policy statements is that whileChinas (Aa3 stable) growth

imperative remains strong, and credit positive for the sovereign, the CPCs new leadership recognizes that

the model established two decades ago is producing diminishing economic returns and has raised social

tensions. In our view, the leadership recognizes that economic growth alone will not address Chinas social

challenges this decade.

The two policy statements key features intend to add scope for market forces, ease restrictions on foreign

investment, scale back government direction of the economy and enhance property rights.

The State Councils Development Research Center (DRC) reiterated to us the statement in the Decisions

that the CPC leadership considers the private sectors role decisive in contributing to the economys

health, which is an evolution from the foundational role the third plenum of the 14thCongress designated

for it in 1993. By leveling the private sectors playing field with the state sector, the CPC leadership intends

to allow greater competition, deregulation and mixed ownership, but without allowing privatization of

strategic state corporate assets.

Fridays policy document contains 16 sections that set benchmarks for major reform areas, with specific

references to strengthening farmers property rights and overhauling the urban residency hukou system,measures to address social equity grievances that have led to incidents of social unrest over the past decade

of rapid industrialization and urbanization.

Reforms will build on initial steps already proposed or taken. In late October, the DRC released its383

reform plan, so called because of its three broad principles, eight priority areas (i.e., finance, taxation, land,

state assets, social welfare, innovation, foreign investment and governance) and three means to achieve

reform. Prior to that announcement, the State Council in February 2013 released wide-ranging guidelines

avid Ericksonssociate [email protected]

om Byrneenior Vice President65.6398.8310

[email protected]
http://www.gov.cn/jrzg/2013-11/15/content_2528179.htmhttp://www.gov.cn/jrzg/2013-11/15/content_2528179.htmhttp://www.gov.cn/jrzg/2013-11/15/content_2528179.htmhttp://www.gov.cn/jrzg/2013-11/15/content_2528179.htmhttp://chinacopyrightandmedia.wordpress.com/2013/11/15/ccp-central-committee-resolution-concerning-some-major-issues-in-comprehensively-deepening-reform/http://chinacopyrightandmedia.wordpress.com/2013/11/15/ccp-central-committee-resolution-concerning-some-major-issues-in-comprehensively-deepening-reform/http://chinacopyrightandmedia.wordpress.com/2013/11/15/ccp-central-committee-resolution-concerning-some-major-issues-in-comprehensively-deepening-reform/https://www.moodys.com/credit-ratings/China-Government-of-credit-rating-599085https://www.moodys.com/credit-ratings/China-Government-of-credit-rating-599085https://www.moodys.com/credit-ratings/China-Government-of-credit-rating-599085https://www.moodys.com/credit-ratings/China-Government-of-credit-rating-599085http://chinacopyrightandmedia.wordpress.com/2013/11/15/ccp-central-committee-resolution-concerning-some-major-issues-in-comprehensively-deepening-reform/http://www.gov.cn/jrzg/2013-11/15/content_2528179.htmhttp://www.gov.cn/jrzg/2013-11/15/content_2528179.htm


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on income distribution measures.1And in 2012, the State Council initiated a pilot reform of business taxes,

mainly benefitting small and medium enterprises.2

As with previous CPC congresses third plenum statements, the full scope of the Central Committees

policy direction will take time to coalesce. This was the case with the transformational third plenum of the14thCPC congress, which in November 1993 announced the socialist market economy principle.

Subsequently, China enacted its first Company Law in 1994, and two years later in 1995, its first Central

Bank and Commercial Bank Laws. Time will tell whether this third plenum also unleashes unprecedented

reforms, as Politburo Standing Committee member Yu Zhengsheng asserted it would in his 26 October

statement, but the direction for reform has gained greater clarity in the past week.

In conclusion, the policies recognize the state sectors dissipated ability to propel growth following the 2008

global financial crisis. Yet, sustained, relatively rapid growth would allow the central government to more

readily absorb contingent fiscal liabilities embedded in local-government investment vehicles and to meet

rising demands to improve peoples livelihood. This would preserve Chinas high growth, strong central

government finances credit profile. A rebalancing of state and private sector roles will boost productivity

and help China achieve the growth targets leadership set out in the run-up to the fifth-generation leadershiptransition in November 2012 (see exhibit below).

Chinas Long-Term Economic OutlookSustained, relatively rapid growth hinges on the success of the third plenums reform agenda

2011-15 2016-20 2021-25 2026-30

Annual GDP Growth 8.6% 7.0% 5.9% 5.0%

Annual Labor Force Growth 0.3% -0.2% -0.2% -0.4%

Annual Labor Productivity Growth 8.3% 7.1% 6.2% 5.5%

Source: World Bank and the Development Research Center of the State Council (2012), China 2030: Building a Modern, Harmonious, and Creative Society.

1 SeeChinas Income Redistribution Plan,11 February 2012.2 SeeExpansion of Value-Added Tax Trial is Credit Positive for China, 30 July 2012.
http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdfhttp://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_144412http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_144412http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_144412http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_144412http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdf


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Chinas Local Government Finances Will Benefit from Planned Policy Reforms

Measures contained in the two policy statements would improve the ability of Chinas regional and local

governments to finance their service and infrastructure responsibilities. Credit positive measures include the

following:

More transparent budget policies and reporting systems, such as the establishment of comprehensivefinancial statements on an accrual basis, a critical measure to improve the transparency of localgovernment operations

An improved central government financial transfer system to local governments. Reforms include lessreliance on earmarked special purpose transfers, which sometimes require matching local governmentcontributions, and increased general purpose transfers that provide greater flexibility to localgovernments

Tax reform, including the introduction of property and resource taxes,which would potentiallyprovide additional and more stable revenue sources to local governments

A more effective budgetary frameworkincluding better matched revenue-raising authority andspending responsibilities, and clarified central and local government responsibilities, which is likely toimprove accountability and fiscal outcomes

Establishing local government debt management and risk warning mechanismsthat would likelyconstrain indebtedness

Introducing new financing mechanisms,such as allowing local governments to issue bonds to broadenthe financing channels for urban construction, which would make local government borrowing moretransparent.

The plenary sessions conclusions will guide the development of implementation plans and regulations of

individual ministries, although the timing for these developments is unclear. But the fact that this direction

has been approved by senior leadership and is consistent with announcements over the past 12 months

demonstrates the central governments serious commitment to fiscal reform of the countrys localgovernments. Consequently, we expect the central government to expedite implementation of reforms.

The reforms address shortcomings in local government budgetary frameworks, in particular, the mismatch

between their revenue-raising powers and actual responsibilities (i.e., vertical fiscal imbalance3).

Some of the considered solutions, such as the rollout of a national property tax, which has proven to be a

secure and stable revenue source for local governments in many countries, along with shifting expenditure

responsibilities to different levels of government, if implemented, would likely put local governments on a

more solid financial footing by better aligning revenues with spending.

In addition, local governments are responsible for meeting their infrastructure needs, but are not allowed to

access capital markets. However, infrastructure needs and costs are increasing massively because of thecountrys high rate of urbanization, which the government projects will rise to 60% by 2030 from 50%

presently, with each 1 percentage point gain equal to 10 million people. Responsibilities such as those for

infrastructure have led to fiscal pressures and indirect, riskier forms of borrowing through local government

financing vehicles and other related entities.

3 Local governments collect 51% of revenues, but are responsible for 85% of expenditures in China.

ebra Roaneice President - Senior Credit [email protected]


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MOODYS CREDIT OUTLOOK 18 NOVEMBER

A local government bond market would allow for greater transparency in local government finances, and

would have the added benefit of making them more accountable for their own investments and borrowing

decisions.

We believe central leadership has the necessary political resolve to make the changes, but given the wide-ranging and complex nature of the reforms, the timing for their actual implementation is likely to take

several years.


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Chinas Strategic State-Owned Enterprises Will Benefit

The policy statements outline key reform initiatives that the government will enact by 2020 and affirm the

dominant role of the economys public sector. We believe these reform initiatives and affirmations are credit

positive for strategically important Chinese state-owned enterprises (SOEs).4

The governments continued focus on the public sector leads us to believe it will continue to direct state-

owned capital to strategically important areas, including those that are related to national security, key to

the Chinese economy, provide public service, or are developing emerging strategic industries or support

SOEs operating in these areas.

Examples of these SOEs includeChina National Petroleum Corporation(CNPC, Aa3 stable),China

Petrochemical Corporation(Sinopec, Aa3 stable),China National Offshore Oil Corporation(Aa3 stable),

State Grid Corporation of China(Aa3 stable),China General Nuclear Power Corporation(A3, stable), and

China Three Gorges Corporation(A3 stable). Strategically important SOEs are also apt to benefit as the

state gradually reduces its investment and involvement in less important sectors, potentially redirecting

proceeds and resources to the strategically important SOEs.

The policy agenda includes other reform initiatives that would likely improve SOEs standalone credit

strength by enhancing management and corporate governance, improving accountability for investment

decisions, employing professional managers, optimizing reward and incentive systems, and promoting

financial and budget information disclosures.

Moreover, the policy documents stress the decisive role of market mechanisms in resource allocation in the

economy, which implies further relaxation of government control on interest rates, capital flow, investments

and energy prices. These developments, along with related changes such as pricing mechanism reforms for

refined oil and natural gas earlier this year and the removal of the lending rate floor in July,5will generally

benefit Chinese corporates. SOEs will be among the major beneficiaries, for example, those like CNPC and

Sinopec, which suffered losses in their refining and natural gas import businesses because of government

price controls.6

Some reform initiatives could have negative credit consequences for SOEs. However, we expect those

reforms will be gradually implemented to help the government maintain stability while transitioning amid

economic growth. For instance, the Decision includes a plan to allocate 30% of the gains of the country's

state-owned capital to public fiscal account by 2020, versus the current requirement for SOEs to repatriate

only up to 15% of their net income to the state. The potential increase of dividend payout will reduce the

SOEs free cash flow.7However, the effect on rated central SOEs will be modest because we expect that the

plan will phase in gradually.

Additionally, opening currently monopolized non-strategically important sectors, such as unconventional

oil & gas resources, telecom value-added service and medical services, will enable the private sector

businesses to establish niche positions in some of these markets. Increasing competition even amid gradual

reforms will likely pressure the credit profiles of SOEs in these sectors.

4 SeeCredit Quality of Chinas Central SOEs Will Diverge Further Amid Economic Reforms,8 August, 2013.5 SeeChinese Central Banks Removal of Lending Rate Floor Is Credit Negative for Banks,22 July 2013.6 SeeChinas Oil Price Reform Is Credit Positive for the Countrys Refiners, 28 March 2013.7 SeeChinas Plan to Increase State-Owned Enterprise Dividends Is Credit Negative,published on 11 February, 2013.

ai Huice President - Senior Credit [email protected]
https://www.moodys.com/credit-ratings/China-National-Petroleum-Corporation-credit-rating-600050067https://www.moodys.com/credit-ratings/China-National-Petroleum-Corporation-credit-rating-600050067https://www.moodys.com/credit-ratings/China-National-Petroleum-Corporation-credit-rating-600050067https://www.moodys.com/credit-ratings/China-Petrochemical-Corporation-credit-rating-823134637https://www.moodys.com/credit-ratings/China-Petrochemical-Corporation-credit-rating-823134637https://www.moodys.com/credit-ratings/China-Petrochemical-Corporation-credit-rating-823134637https://www.moodys.com/credit-ratings/China-Petrochemical-Corporation-credit-rating-823134637https://www.moodys.com/credit-ratings/China-National-Offshore-Oil-Corporation-credit-rating-600061420https://www.moodys.com/credit-ratings/China-National-Offshore-Oil-Corporation-credit-rating-600061420https://www.moodys.com/credit-ratings/China-National-Offshore-Oil-Corporation-credit-rating-600061420https://www.moodys.com/credit-ratings/State-Grid-Corporation-of-China-credit-rating-823082774https://www.moodys.com/credit-ratings/State-Grid-Corporation-of-China-credit-rating-823082774https://www.moodys.com/credit-ratings/China-General-Nuclear-Power-Corporation-credit-rating-823160794https://www.moodys.com/credit-ratings/China-General-Nuclear-Power-Corporation-credit-rating-823160794https://www.moodys.com/credit-ratings/China-General-Nuclear-Power-Corporation-credit-rating-823160794https://www.moodys.com/credit-ratings/China-Three-Gorges-Corporation-credit-rating-822718553https://www.moodys.com/credit-ratings/China-Three-Gorges-Corporation-credit-rating-822718553http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_155707http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_155707http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_155707http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_156619http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_156619http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_156619http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_151893http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_151893http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_151893http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_149938http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_151893http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_156619http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_155707https://www.moodys.com/credit-ratings/China-Three-Gorges-Corporation-credit-rating-822718553https://www.moodys.com/credit-ratings/China-General-Nuclear-Power-Corporation-credit-rating-823160794https://www.moodys.com/credit-ratings/State-Grid-Corporation-of-China-credit-rating-823082774https://www.moodys.com/credit-ratings/China-National-Offshore-Oil-Corporation-credit-rating-600061420https://www.moodys.com/credit-ratings/China-Petrochemical-Corporation-credit-rating-823134637https://www.moodys.com/credit-ratings/China-Petrochemical-Corporation-credit-rating-823134637https://www.moodys.com/credit-ratings/China-National-Petroleum-Corporation-credit-rating-600050067


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MOODYS CREDIT OUTLOOK 18 NOVEMBER

Nevertheless, large SOEs in sectors such as oil and gas, telecommunications and railway have accumulated

significant advantages in technology, experience, client relationship and distribution networks, which are

difficult for potential competitors to replicate in a short period.


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Chinas Large Property Developers Will Benefit from Urbanization and MarketMechanisms

The policy statements are credit positive for large property developers because they suggest a central

government policy agenda that continues the urbanization process, loosens control of interest rates and

relies more on market dynamics to determine resource allocation.

The government projects urbanization will increase to 60% by 2030 from 50% now, with each 1

percentage point gain equal to 10 million people. One hundred million more city dwellers in the next 17

years in a more market-driven property market would be credit positive for leading mass-market property

developers. Those best positioned to capture the demand includeChina Overseas Land & Investment

Limited(Baa1 stable),China Vanke Co. Ltd.(Baa2 stable),Longfor Properties Co. Ltd.(Ba1 stable),

Country Garden Holdings Company Limited(Ba2 stable) andShimao Property Holdings Limited(Ba2

stable). Compared to smaller property developers, these developers benefit from better geographic coverage

in China, higher quality properties, better after-sale services, and stronger brands. Their average annual sales

are RMB30 billion ($4.9 billion) or more.

The large developers will also have better access to bank financing at lower costs under the governments

intention to relax control of interest rates because banks prefer large market players with solid credit

profiles, and demand for their higher quality projects permits them to pledge the projects as collateral for

bank borrowings.

The policy statements mention that local governments will be allowed to access capital markets. This would

support the countrys urbanization process as the local governments can raise funds to support their

infrastructures needs.

The policy statements also mention tax reform, which we interpret as meaning the government wants to

expand the three-year old property tax programs in Shanghai and Chongqing to more cities. Households

fulfilling certain criteria, such as gross floor area, are required to pay property tax in these cities. The tax

aims to boost local governments tax revenue rather than cool the property market. Shanghai and

Chongqings taxes are low and have not had material effect on the property markets, and we do not expect

the central government to implement a significant tax that would materially affect rated developers over the

next 12-18 months.

We do not expect the government to relax its existing restrictions on property purchases and mortgage

financing for second homes. These restrictions are meant to reduce speculative property development and

keep house prices from spiking.

ranco Leungssistant Vice President - [email protected]

aven Tsangice President - Senior [email protected]
https://www.moodys.com/credit-ratings/China-Overseas-Land-Investment-Limited-credit-rating-600012308https://www.moodys.com/credit-ratings/China-Overseas-Land-Investment-Limited-credit-rating-600012308https://www.moodys.com/credit-ratings/China-Overseas-Land-Investment-Limited-credit-rating-600012308https://www.moodys.com/credit-ratings/China-Overseas-Land-Investment-Limited-credit-rating-600012308https://www.moodys.com/credit-ratings/China-Vanke-Co-Ltd-credit-rating-820391194https://www.moodys.com/credit-ratings/China-Vanke-Co-Ltd-credit-rating-820391194https://www.moodys.com/credit-ratings/China-Vanke-Co-Ltd-credit-rating-820391194https://www.moodys.com/credit-ratings/Longfor-Properties-Co-Ltd-credit-rating-822418382https://www.moodys.com/credit-ratings/Longfor-Properties-Co-Ltd-credit-rating-822418382https://www.moodys.com/credit-ratings/Longfor-Properties-Co-Ltd-credit-rating-822418382https://www.moodys.com/credit-ratings/Country-Garden-Holdings-Company-Limited-credit-rating-820537613https://www.moodys.com/credit-ratings/Country-Garden-Holdings-Company-Limited-credit-rating-820537613https://www.moodys.com/credit-ratings/Shimao-Property-Holdings-Limited-credit-rating-809824105https://www.moodys.com/credit-ratings/Shimao-Property-Holdings-Limited-credit-rating-809824105https://www.moodys.com/credit-ratings/Shimao-Property-Holdings-Limited-credit-rating-809824105mailto:[email protected]:[email protected]://www.moodys.com/credit-ratings/Shimao-Property-Holdings-Limited-credit-rating-809824105https://www.moodys.com/credit-ratings/Country-Garden-Holdings-Company-Limited-credit-rating-820537613https://www.moodys.com/credit-ratings/Longfor-Properties-Co-Ltd-credit-rating-822418382https://www.moodys.com/credit-ratings/China-Vanke-Co-Ltd-credit-rating-820391194https://www.moodys.com/credit-ratings/China-Overseas-Land-Investment-Limited-credit-rating-600012308https://www.moodys.com/credit-ratings/China-Overseas-Land-Investment-Limited-credit-rating-600012308


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Chinas Utilities Will Benefit from Focus on Markets and Clean Energy

The two policy statements set specific benchmarks for key social, environmental and economic reforms that

suggest measures that will be credit positive for the countrys utilities companies.

We expect the government to expedite prevailing reform initiatives in Chinas utilities and infrastructure

sectors, including increasing the transparency and linkage of market-based fuel costs in regulated utility

tariffs and related cost pass-through mechanisms; shifting to clean energy sources from fossil fuels; and

lowering the barriers to entry for private sector firms to participate in utility and infrastructure projects,

thereby promoting competition.

Improving the tariff mechanism to pass fuel-price increases onto customers would be credit positive for

power utilities, particularly those with coal-fired generation, such asChina Resources Power Holdings Co.

Ltd.(Baa3 stable). Gas distribution companies, includingChina Resources Gas Group Limited(Baa1

stable),ENN Energy Holdings Limited(Baa3 stable),Towngas China Company Limited(Baa2 stable),

The Hong Kong and China Gas Co. Ltd.(A1 stable) andBeijing Enterprises Holdings Ltd.(Baa1 stable)

will also benefit.

The lack of a clear framework for the timely adjustment of regulated tariffs to reflect fuel-price increases has

weakened the profitability of coal-fired power generating companies in recent years, and to a lesser extent,

gas distribution companies.

One of the key market-oriented reforms underway in China is expediting the rationalization of resource

prices, which improves the transparency and predictability of Chinas evolving regulatory framework. We

expect the government to step up efforts to lift price controls on coal, natural gas and on-grid tariffs, and

increase transparency in tariff mechanisms that allow upstream producers to pass costs to downstream users.

The price and tariff mechanism reforms will give the power utilities better control over their sales prices and

room to improve cost efficiencies, making the sector more competitive.

The emphasis on clean-energy sources is credit positive for clean-energy generation companies such as

China Longyuan Power Group Corporation Limited(Baa3 stable) and gas distribution companies. We

expect these companies to continue benefitting from rising market demand, favorable government policies

and improving support for infrastructure facilities, such as faster expansion of gas pipelines and electric grid

networks that transmit and distribute clean energy to end-users.

The promotion of private investment, another key theme of the policy statements, would increase

competition and encourage companies to improve their efficiency. Although an increase of private capital

will intensify the competition for new projects, we do not expect most of our rated power utilities and

infrastructure companies to be challenged over next three years given their established market positions,

exclusive franchise rights and good financial profiles to meet heavy capital investment requirements.

We expect more concrete details on the reforms in coming weeks and an accelerated, though gradual, pace

for reform in order to maintain stability and economic growth.

van Chungice President - Senior Credit [email protected]

vy [email protected]
https://www.moodys.com/credit-ratings/China-Resources-Power-Holdings-Co-Ltd-credit-rating-807668282https://www.moodys.com/credit-ratings/China-Resources-Power-Holdings-Co-Ltd-credit-rating-807668282https://www.moodys.com/credit-ratings/China-Resources-Power-Holdings-Co-Ltd-credit-rating-807668282https://www.moodys.com/credit-ratings/China-Resources-Power-Holdings-Co-Ltd-credit-rating-807668282https://www.moodys.com/credit-ratings/China-Resources-Gas-Group-Limited-credit-rating-821169923https://www.moodys.com/credit-ratings/China-Resources-Gas-Group-Limited-credit-rating-821169923https://www.moodys.com/credit-ratings/China-Resources-Gas-Group-Limited-credit-rating-821169923https://www.moodys.com/credit-ratings/ENN-Energy-Holdings-Limited-credit-rating-808553698https://www.moodys.com/credit-ratings/ENN-Energy-Holdings-Limited-credit-rating-808553698https://www.moodys.com/credit-ratings/ENN-Energy-Holdings-Limited-credit-rating-808553698https://www.moodys.com/credit-ratings/Towngas-China-Company-Limited-credit-rating-807467186https://www.moodys.com/credit-ratings/Towngas-China-Company-Limited-credit-rating-807467186https://www.moodys.com/credit-ratings/Towngas-China-Company-Limited-credit-rating-807467186https://www.moodys.com/credit-ratings/Hong-Kong-and-China-Gas-Co-Ltd-The-credit-rating-808091208https://www.moodys.com/credit-ratings/Hong-Kong-and-China-Gas-Co-Ltd-The-credit-rating-808091208https://www.moodys.com/credit-ratings/Beijing-Enterprises-Holdings-Ltd-credit-rating-820496856https://www.moodys.com/credit-ratings/Beijing-Enterprises-Holdings-Ltd-credit-rating-820496856https://www.moodys.com/credit-ratings/Beijing-Enterprises-Holdings-Ltd-credit-rating-820496856https://www.moodys.com/credit-ratings/China-Longyuan-Power-Group-Corporation-Ltd-credit-rating-823082403https://www.moodys.com/credit-ratings/China-Longyuan-Power-Group-Corporation-Ltd-credit-rating-823082403https://www.moodys.com/credit-ratings/China-Longyuan-Power-Group-Corporation-Ltd-credit-rating-823082403https://www.moodys.com/credit-ratings/Beijing-Enterprises-Holdings-Ltd-credit-rating-820496856https://www.moodys.com/credit-ratings/Hong-Kong-and-China-Gas-Co-Ltd-The-credit-rating-808091208https://www.moodys.com/credit-ratings/Towngas-China-Company-Limited-credit-rating-807467186https://www.moodys.com/credit-ratings/ENN-Energy-Holdings-Limited-credit-rating-808553698https://www.moodys.com/credit-ratings/China-Resources-Gas-Group-Limited-credit-rating-821169923https://www.moodys.com/credit-ratings/China-Resources-Power-Holdings-Co-Ltd-credit-rating-807668282https://www.moodys.com/credit-ratings/China-Resources-Power-Holdings-Co-Ltd-credit-rating-807668282


10/54



Corporates

New Cholesterol Guidelines Are Positive for AstraZeneca, Negative for Merck

On Tuesday, two major US heart associations released guidelines for the treatment of cardiovascular disease

and recommended the use of cholesterol-lowering statins for patients who fall into four broad risk

categories. The associations also said that non-statin therapies do not acceptably reduce the risk of heart

attack, stroke and other cardiovascular events.

As a result, we expect statin use to rise, which is credit positive forAstraZeneca PLC(A2 stable) and generic

manufacturers of statins, includingTeva Pharmaceuticals Industries Ltd.(A3 negative). We also expect the

use of non-statin cholesterol drugs to fall, a credit negative forMerck & Co., Inc.(guaranteed obligations

A1 stable) andAbbVie Inc.(Baa1 stable).

The guidelines, published by the American College of Cardiology and the American Heart Association,

mark a change to previous recommendations, under which patients were treated to specific cholesterolgoals. Instead, the new protocols recommend statin therapy for patients who fall into any one of four risk

buckets, which encompass patients with a broad range of cholesterol levels. For example, although current

guidelines recommend statin treatment primarily to patients with low-density lipoprotein cholesterol, or

LDL-C levels, of 130 or higher, the new guidelines recommend treatment for people with much lower

levels, depending on their age and other risk factors, such as diabetes.

Although some patients currently taking statins, but not falling in the risk buckets, may stop, we believe the

overall use of statins will rise. The increase might take some time to materialize, given that the existing

guidelines have been in place for more than a decade and are well entrenched. The guidelines only apply in

the US, but over time various cardiovascular groups or regulators in other countries might adopt a similar

approach.

As shown in the exhibit below, the largest branded statin is AstraZenecas Crestor. The drug accounted for

22% of AstraZenecas year-to-date 2013 sales through 30 September. Most other statins have gone generic in

the US, so most promotional effort in the statin space is done by AstraZeneca, without competition. Pfizer

Inc.s (A1 stable) Lipitor is also a statin, but most of its sales are outside the US because it already went generic

Cholesterol Drug Sales for the 12 Months Ended 30 September 2013Crestor Is the Largest Cholesterol Drug and Will Benefit Most from the New Guidelines

Source: Company press releases and filings

$0

$1

$2

$3

$4

$5

$6

$7

Cresto r (AstraZeneca) Zetia (Merck) Lip itor (P fizer) Vyto rin (Merck) Niasp an (Ab bVie) Trico r/Trilip ix ( Ab bvie)

$Billions

US Ex-US

Michael Levesque, CFAenior Vice President1.212.553.4093

[email protected]
https://www.moodys.com/credit-ratings/AstraZeneca-PLC-credit-rating-600011131https://www.moodys.com/credit-ratings/AstraZeneca-PLC-credit-rating-600011131https://www.moodys.com/credit-ratings/AstraZeneca-PLC-credit-rating-600011131https://www.moodys.com/credit-ratings/Teva-Pharmaceutical-Industries-Ltd-credit-rating-600022073https://www.moodys.com/credit-ratings/Teva-Pharmaceutical-Industries-Ltd-credit-rating-600022073https://www.moodys.com/credit-ratings/Teva-Pharmaceutical-Industries-Ltd-credit-rating-600022073https://www.moodys.com/credit-ratings/Merck-Co-Inc-credit-rating-663000https://www.moodys.com/credit-ratings/Merck-Co-Inc-credit-rating-663000https://www.moodys.com/credit-ratings/Merck-Co-Inc-credit-rating-663000https://www.moodys.com/credit-ratings/AbbVie-Inc-credit-rating-823204655https://www.moodys.com/credit-ratings/AbbVie-Inc-credit-rating-823204655https://www.moodys.com/credit-ratings/AbbVie-Inc-credit-rating-823204655https://www.moodys.com/credit-ratings/Pfizer-Inc-credit-rating-604000https://www.moodys.com/credit-ratings/Pfizer-Inc-credit-rating-604000https://www.moodys.com/credit-ratings/Pfizer-Inc-credit-rating-604000https://www.moodys.com/credit-ratings/Pfizer-Inc-credit-rating-604000https://www.moodys.com/credit-ratings/Pfizer-Inc-credit-rating-604000https://www.moodys.com/credit-ratings/Pfizer-Inc-credit-rating-604000https://www.moodys.com/credit-ratings/AbbVie-Inc-credit-rating-823204655https://www.moodys.com/credit-ratings/Merck-Co-Inc-credit-rating-663000https://www.moodys.com/credit-ratings/Teva-Pharmaceutical-Industries-Ltd-credit-rating-600022073https://www.moodys.com/credit-ratings/AstraZeneca-PLC-credit-rating-600011131


11/54



Generic statins, such as atorvastatin, simvastatin and pravastatin, are sold by a variety of manufacturers,

including Teva,Actavis, Inc.(Baa3 stable) andMylan Inc.(Baa3 stable). Although these companies will

benefit, the upside in their results could be negligible given the diversity of their product portfolios.

The new guidelines also state that non-statin therapies (alone or in combination) do not provide acceptablebenefits compared with their potential for adverse effects in the routine prevention of heart attack, stroke or

other conditions classified as atherosclerotic cardiovascular disease. Assuming that physicians adopt the new

guidelines, they will have the most negative effect on Merck, affecting its large Zetia/Vytorin franchise.

Zetia is not a statin, but is approved for the reduction of cholesterol and is taken either alone or in

combination with a statin. Merck also manufactures Vytorin, a combination of Zetia with the older, generic

drug simvastatin, which Merck sells as Zocor.

Much of the marketing message around Zetia centers on helping patients to reach their cholesterol goals,

which the new guidelines specifically de-emphasize. Although not a major growth driver, these products are

important to Merck, together totaling close to 10% of its year-to-date sales and not facing generics before

December 2016. A sharp decline would increase Mercks challenges in restoring healthy growth, already

affected by generic competition and other competitive pressures.

AbbVie will see a decline in its cholesterol franchises, Trilipix and Niaspan, which constitute 6% of

AbbVies sales. These products are not statins, but are used to lower LDL-C (Trilipix) and raise high-

density lipoprotein cholesterol, or HDL-C (Niaspan). The products have already been facing generic

competition and are becoming less relevant to AbbVie as products such as Humira continue to grow.
https://www.moodys.com/credit-ratings/Actavis-Inc-credit-rating-600041994https://www.moodys.com/credit-ratings/Actavis-Inc-credit-rating-600041994https://www.moodys.com/credit-ratings/Actavis-Inc-credit-rating-600041994https://www.moodys.com/credit-ratings/Mylan-Inc-credit-rating-808411821https://www.moodys.com/credit-ratings/Mylan-Inc-credit-rating-808411821https://www.moodys.com/credit-ratings/Mylan-Inc-credit-rating-808411821https://www.moodys.com/credit-ratings/Mylan-Inc-credit-rating-808411821https://www.moodys.com/credit-ratings/Actavis-Inc-credit-rating-600041994


12/54



Kimberly-Clark Plans to Spin Off Healthcare Business, a Credit Negative

On Thursday,Kimberly-Clark Corporation(A2 stable) said it plans to pursue a tax-free spin-off of its

healthcare business, one of its four segments, which is credit negative because it will diminish business

diversity and cash flow.

The spin-off reduces revenue by around 8% and EBITDA by around 7%. The loss of earnings and the

companys indication that it will not reduce its $0.81-per-share quarterly dividend (approximately $1.2

billion annually) will hurt free cash flow.

Nevertheless, we expect that retained cash flow to net debt (about 25% for the 12 months through 30

September, with all ratios incorporating Moody's standard adjustments) will remain above 22%, and funds

from operations to net debt (approximately 39% for the same period) will remain above 31%, levels that

would lead to downward rating pressure. We expect that 2014 retained cash flow to net debt will be 24%-

25% and funds from operations to net debt about 40%, factoring in the planned spin-off.

The company will continue to maintain good geographic diversity, meaningful scale and strong market

positions in its personal care and consumer tissue businesses following the spin-off. We project that pro

forma free cash flow will exceed $600 million in 2014. We also believe that the company is committed to

maintaining good commercial paper market access. Accordingly, we expect the company will manage its

cash flow and balance sheet to sustain credit metrics necessary to maintain its A2 and Prime-1 ratings. For

example, Kimberly-Clark indicated it will moderate future dividend increases until the dividend payout

ratio is restored to its current level. This mitigates the spin-offs upward pressure on the dividend payout

ratio. Debt-to-EBITDA leverage (2.2x last 12 months as of 30 September) increases to roughly 2.4x pro

forma for the transaction, but we project a return to 2.2x in 2014.

Kimberly-Clark has not disclosed certain details regarding the structure of the spin-off, including whether

the company plans to extract cash as part of the transaction by issuing debt at the new entity to fund a

distribution to Kimberly-Clark. The company also has not disclosed how much cash and pension liability, if

any, would be transferred to the new company. Our projected 2014 credit metrics would improve modestly

if the company receives cash and/or transfers any pension obligations, which we have not assumed.

We do not expect the spin-off to meaningfully affect Kimberly-Clark 's retained businesses because the

company's scale (pro forma revenue base of approximately $19.6 billion) remains significant. Any loss of

purchasing or manufacturing synergies is manageable, and we expect Kimberly-Clark to quickly rationalize

any stranded overhead costs. Kimberly-Clark's healthcare business, which supplies surgical and infection-

prevention products to hospitals and certain medical devices, has a lower margin than the company's overall

average. The company expects to complete the spin-off by the end of third-quarter 2014.

ohn Puchallaice President - Senior Credit Officer1.212.553.4026

[email protected]
https://www.moodys.com/credit-ratings/Kimberly-Clark-Corporation-credit-rating-439000https://www.moodys.com/credit-ratings/Kimberly-Clark-Corporation-credit-rating-439000https://www.moodys.com/credit-ratings/Kimberly-Clark-Corporation-credit-rating-439000https://www.moodys.com/credit-ratings/Kimberly-Clark-Corporation-credit-rating-439000


13/54



General Electric Plans to Exit Retail Finance Business Are Credit Negative

Last Friday,General Electric Company(Aa3 stable) said it planned to exit the retail finance business

through a multi-step transaction that will begin with an initial public offering of up to 20% of the shares of

General Electric Capital Corporations (A1 stable) North American retail finance unit in 2014. Although

these planned measures will lower the funding risk at GE Capital, we view them as credit negative because

they will reduce GE Capitals earnings and shrink the scale of future dividends that GE Capital can

upstream to GE.

After the planned IPO, GE expects to distribute in 2015 its remaining interest in GE Capitals retail finance

unit to voting GE shareholders in exchange for shares of GE common stock the effective equivalent of a

share repurchase, albeit by means of an asset exchange rather than cash. This will enable GE to achieve its

strategic objective of returning its common stock share base to levels it had before the global financial crisis.

GE will remain exposed to the retail finance business for several years because GE Capital will need to

provide the soon-to-be-spun-off unit with transitional funding and administrative services while managing

the ownership transition. We expect that the nature and magnitude of this support to be similar to current

levels, but it will extend beyond the split-off date. As the transaction progresses, GE will therefore likely

cede control of the retail finance assets well before the need for support is fully eliminated.

The transaction is consistent with GEs strategy of shrinking GE Capitals balance sheet and reducing its

related exposure to wholesale funding risk and cyclical deterioration in asset quality performance for non-

core assets. In fact, the planned separation accelerates the parent companys recent risk-reduction measures

and its ongoing transition to a more industrial-oriented business mix.

But although the retail finance unit periodically experiences higher-than-average delinquency and credit-loss

rates, it also generates above-average returns relative to GE Capitals other business units. GE expects that

the units 2013 earnings will be in line with 2012 unit profits of $2.2 billion, or about 27% of GE Capitals

earnings (before corporate items and eliminations). The loss of this income stream will reduce the dividends

that GE Capital will be able to distribute to GE.

GE Capitals asset sales over the past few years have enabled it to increase capital distributions to GE, which

included the repayment of $15 billion of support it received from its parent during the global financial

crisis. However, GE has used much of this money to repurchase shares, rather than benefit creditors.

GE Capitals retail finance unit is composed of US and Canadian private-label and dual-card8businesses

($36 billion of receivables as of 30 September), a sales finance unit ($11 billion) and an elective health

procedure finance business ($6 billion). The transaction brings ending net investment closer to GEs $300-

$350 billion target and will enable it to meet its goal of reducing GE Capitals contribution to consolidated

parent company earnings to 30%, from pre-crisis levels of 45%-55%.

8 Dual-card combines a private label or branded affinity program (e.g., Macy's, Sears, GAP) with one of the major payment network(e.g., VISA, Mastercard, or AMEX).

ussell Solomonenior Vice [email protected]
https://www.moodys.com/credit-ratings/General-Electric-Company-credit-rating-313000https://www.moodys.com/credit-ratings/General-Electric-Company-credit-rating-313000https://www.moodys.com/credit-ratings/General-Electric-Company-credit-rating-313000https://www.moodys.com/credit-ratings/General-Electric-Capital-Corporation-credit-rating-314000https://www.moodys.com/credit-ratings/General-Electric-Capital-Corporation-credit-rating-314000https://www.moodys.com/credit-ratings/General-Electric-Capital-Corporation-credit-rating-314000https://www.moodys.com/credit-ratings/General-Electric-Company-credit-rating-313000


14/54



Grifols Acquires Novartis Diagnostics Business Unit, a Credit Negative

Last Monday, Spain-based global healthcare companyGrifols S.A.(Ba2 negative) announced its acquisition

ofNovartis AGs(Aa3 stable) Diagnostics Business Unit for a total consideration of $1.67 million. The

purchase is credit negative for Grifols because it is largely debt funded and will increase Grifols leverage.

After the announcement,we changed Grifols rating outlook to negative.The sale is credit positive for

Novartis.

Grifols acquisition is another rather aggressive step to grow its business following the 2011 Talecris

acquisition, which also was entirely debt financed. Grifols expects to close the Novartis diagnostic unit

acquisition in the first half of 2014, subject to regulatory approvals.

Grifols pro forma leverage will increase by around 0.7x to 3.9x assuming profitability of the target is

comparable to Grifols profitability. We expect the pace of deleveraging will be relatively slow partly because

there are no immediate cost synergies. Additionally, the pro forma leverage calculation could understate the

leverage effect if the diagnostic business unit grows at a rate lower than Grifols and its EBITDA declines

because of expiring intellectual property royalties over the next few years.

However, the initial negative effect on leverage is partly offset by an improvement in Grifols business

profile. Grifols currently operates through four divisions: Bioscience, Diagnostics, Hospital as well as Raw

Materials and Others (mainly engineering). Bioscience, which accounts for approximately 90% of current

revenues, focuses on the development, manufacturing, marketing and distribution of a broad range of blood

plasma-derived products. These products are used for the treatment of chronic and acute conditions, such

as immune system deficiencies, neurological diseases, bleeding diseases, burns and major surgery.

The acquisition of Novartis diagnostics business unit will improve Grifols diversification and reduce its

dependence on the Bioscience business, which will decline post-acquisition toward 70% of total sales. The

diagnostics business will help broaden Grifols portfolio considerably with a complementary product line,

and its expansion in blood screening further improves its vertical integration.

Although the acquisition is partly funded from existing cash balances of 488 million as per end of

September 2013, Grifols liquidity profile remains good. In addition, we expect continued sizeable positive

free cash flow generation on the back of the targets high cash flow generation and ongoing favorable

market dynamics in Grifols core blood plasma business. Grfiols recent results have been strong, supported

by organic growth, declining integration costs and moderate margin expansion. Hence, we would expect

Grifols to apply its positive free cash generation to debt reduction over the next 12-18 months to reduce

leverage to below 3.5x (from the pro forma 3.9x we estimate) a level more commensurate with its current

rating.

Grifols reported revenues were 2.71 billion for the last 12 months as of September 2013. Grifols is the

third-largest company by revenue in the global plasma derivatives market, which has approximately $14

billion in annual sales, ranking behindBaxter International Inc.(A3 stable) and CSL (unrated)

lex Verbovice President - Senior [email protected]

enedikt Schwarzssociate [email protected]
https://www.moodys.com/credit-ratings/Grifols-SA-credit-rating-822034161https://www.moodys.com/credit-ratings/Grifols-SA-credit-rating-822034161https://www.moodys.com/credit-ratings/Grifols-SA-credit-rating-822034161https://www.moodys.com/credit-ratings/Novartis-AG-credit-rating-600022126https://www.moodys.com/credit-ratings/Novartis-AG-credit-rating-600022126https://www.moodys.com/credit-ratings/Novartis-AG-credit-rating-600022126https://www.moodys.com/research/Moodys-changes-the-outlook-of-Grifols-Ba2-rating-to-negative--PR_286433https://www.moodys.com/research/Moodys-changes-the-outlook-of-Grifols-Ba2-rating-to-negative--PR_286433https://www.moodys.com/research/Moodys-changes-the-outlook-of-Grifols-Ba2-rating-to-negative--PR_286433https://www.moodys.com/credit-ratings/Baxter-International-Inc-credit-rating-95000https://www.moodys.com/credit-ratings/Baxter-International-Inc-credit-rating-95000https://www.moodys.com/credit-ratings/Baxter-International-Inc-credit-rating-95000https://www.moodys.com/credit-ratings/Baxter-International-Inc-credit-rating-95000https://www.moodys.com/research/Moodys-changes-the-outlook-of-Grifols-Ba2-rating-to-negative--PR_286433https://www.moodys.com/credit-ratings/Novartis-AG-credit-rating-600022126https://www.moodys.com/credit-ratings/Grifols-SA-credit-rating-822034161


15/54



China SCE Propertys Latest Land Purchase Is Credit Negative

Last Monday,China SCE Property Holdings Limited(B1 stable) announced that it won a bid for land in

Shanghais Hongqiao District for a consideration of RMB3.6 billion. The acquisition is credit negative

because the companys lack of experience in Shanghai increases the projects liquidity and execution risks.

China SCE is making the purchase with two partners and is responsible for about half of the purchase price

It will fund the purchase with operating cash flow and cash on hand and therefore wont increase its gross

debt leverage. The companys contracted sales totaled RMB9.2 billion for the first 10 months of the year,

well ahead of our expectations and the companys original full-year target of RMB7.5 billion.

Although the purchase is in line with the companys goal of reducing its exposure to lower-tier cities where

property supply is increasing, China SCE lacks the financial capacity to operate only in first-tier cities,

where land and construction costs are higher than in smaller cities. Out of China SCEs 29 projects as of

end-June, only three were in first-tier cities (two in Beijing and one in Shenzhen).

Operating primarily in the Bohai Rim and West Taiwan Strait economic zones, China SCEs total land

bank at end-June was approximately 10 million square meters. Of this land bank, 68% was in the West

Taiwan Strait economic zone (Longyan, Nanchang, Quanzhou, Xiamen, Zhangzhou); 28% in the Bohai

Rim economic zone (Anshan, Beijing, Langfang, Linfen, Tangshan); and the rest in Shenzhen. The existing

land bank had an average cost of RMB1,127 per square meter, compared with RMB12,827 per square

meter for the Shanghai Hongqiao site.

The Shanghai project offers the potential for higher profit margins than China SCE can earn in lower-tier

cities; however, given that this is the companys first project in Shanghai and it is not established there, its

ability to complete pre-sales to tenants will likely be tested.

Because Shanghai has more stringent requirements on pre-sales that lengthen the time it takes to start

selling properties before their completion compared with lower-tier cities, managing cash flow will likely be

challenging. For example, pre-sales in Shanghai can begin only when the shell of a building is complete;

pre-sales in lower-tier cities can begin as soon as the foundations of the building is finished. As a result,

China SCEs Shanghai Hongqiao project will require more upfront investment, and cash flow will take

longer to materialize than it does in lower-tier cities.

hris Wongssociate [email protected]

na Choiice President - Senior [email protected]
https://www.moodys.com/credit-ratings/China-SCE-Property-Holdings-Limited-credit-rating-822283522https://www.moodys.com/credit-ratings/China-SCE-Property-Holdings-Limited-credit-rating-822283522https://www.moodys.com/credit-ratings/China-SCE-Property-Holdings-Limited-credit-rating-822283522https://www.moodys.com/credit-ratings/China-SCE-Property-Holdings-Limited-credit-rating-822283522


16/54



BJCL Stake Acquisition in Juda International Would Be Credit Positive

Chinese property developerBeijing Capital Land Limited(BJCL, Ba2 stable) said on Tuesday that it will

acquire a 56.1% equity interest in Juda International Holdings Limited (unrated) for HKD298.5 million.

Juda produces chemical products for industrial uses and has production facilities in Xiamen, Fujian

Province, and is listed on the Hong Kong Stock Exchange. BJCL intends to maintain Juda's bourse listing,

which will give BJCL indirect access to the offshore equity market, a credit positive because it will broaden

BJCLs funding access.

Juda can access the offshore equity market and use the funds raised to invest in property projects in China.

Because it will be part of the BJCL group and consolidated on BJCLs financial statements, its investments

will be reflected in BJCLs financials and will support the groups expansion in China.

BJCL's investment in Juda will increase to a maximum of HKD479.3 million if all the minority

shareholders, excluding Beijing Capital Group Co., Ltd. (Capital Group, unrated), accept its unconditional

cash offer. In addition, the Capital Group, BJCLs largest shareholder with a 47% stake, will acquire a 9.9%

interest in Juda.

The scale of the investment is small, at less than 1% of BJCL's total assets of RMB47.1 billion (HKD58

billion) as of June 2013. With cash holdings of RMB7.9 billion (HKD9.8 billion) as of June, BJCL has

sufficient resources to fund the investment.

Because BJCL is incorporated in China, it needs the China Securities Regulatory Commission's approval to

issue new equity. Its access to equity funding has been restrained since 2010 when the government

tightened controls on the property sector. Juda is incorporated and listed outside of China, so it is not

subject to this regulatory constraint. It can raise funds from Hong Kongs equity market and use that

money to invest in property projects in China.

BJCL will use Juda mainly for equity fundraising in the offshore market. But given Judas small scale, the

amount it can raise initially will be small relative to BJCLs operations. As Juda raises funds and makes

investments, its scale will gradually increase.

However, the role ofInternational Financial Center Property Ltd(IFC, Ba3 stable) as BJCL's primary

investment holding company offshore will remain unchanged. IFC will continue to hold approximately

50% of BJCL's assets and operate as its debt-funding arm in the offshore market.

BJCL was incorporated in China in 2002 and is the property arm of the Capital Group. BJCL was listed on

the Hong Kong Stock Exchange in 2003. It is a medium-sized residential developer in China. As of end-

June 2013, BJCL had a total land bank of 10.79 million square meters (attributable saleable land bank: 7.1

million square meters) in gross floor area, covering 15 cities in China. This land bank will support the

company's development over the next four to five years.

Incorporated in the British Virgin Islands in 2000, IFC is a 100% owned subsidiary of BJCL. It is an

overseas investment holding company that owns property development projects in China. As of end-June

2013, IFC had total assets of RMB21.3 billion and a total land bank of approximately 4.68 million square

meters in saleable gross floor area.

aven Tsangice President - Senior [email protected]
https://www.moodys.com/credit-ratings/Beijing-Capital-Land-Limited-credit-rating-806880085https://www.moodys.com/credit-ratings/Beijing-Capital-Land-Limited-credit-rating-806880085https://www.moodys.com/credit-ratings/Beijing-Capital-Land-Limited-credit-rating-806880085https://www.moodys.com/credit-ratings/International-Financial-Center-Property-Ltd-credit-rating-823224284https://www.moodys.com/credit-ratings/International-Financial-Center-Property-Ltd-credit-rating-823224284https://www.moodys.com/credit-ratings/International-Financial-Center-Property-Ltd-credit-rating-823224284https://www.moodys.com/credit-ratings/International-Financial-Center-Property-Ltd-credit-rating-823224284https://www.moodys.com/credit-ratings/Beijing-Capital-Land-Limited-credit-rating-806880085


17/54



AVIC International Subsidiary Equity Placement Is Credit Positive

Last Monday, Tian Ma Micro-Electronics Company Limited (unrated), a listed subsidiary ofAVIC

International Holding Corporation(Baa3 stable), announced its plan to acquire additional equity interests

in five electronic companies from AVIC International and local-government-owned partners for a total

consideration of RMB5.4 billion. Tian Ma will fund the acquisitions by issuing new shares to the sellers.

Upon completion of the transaction, Tian Ma also intends to place a maximum RMB1.8 billion of new

shares to no more than 10 independent third parties. The proceeds of equity placement will be used to

supplement its own working capital requirements.

The equity placement, as proposed, is credit positive for AVIC International because it will increase the

groups consolidated equity base by around 6% and lower its leverage. Its debt/capital would be reduced by

approximately 1.2 percentage points to 71.7%, from 72.9% as of year-end 2012, absent other changes. It

will also support AVICs growing liquid crystal display (LCD) businesses, which are heavily funded by debt

The injection of assets into the publicly listed subsidiary will improve the information transparency of

AVIC International. AVIC International is not a listed company. With more businesses included in listed

subsidiaries, investors are likely to have more comprehensive and timely knowledge of AVIC Internationals

operations.

The purchase plan will not materially change the AVIC Internationals business profile because it already

partially owns and manages the five target companies. Tian Ma will remain a consolidated subsidiary of

AVIC International after the transaction.

Tian Ma is purchasing its stakes in the companies from these sellers:

a 70% equity interest in Shanghai Tian Ma from AVIC International Holdings Limited, ShanghaiZhangjiang Company, Shanghai State Assets Company and Shanghai Optical CommunicationsCorporation

a 40% equity interest in Chengdu Tian Ma from Chengdu Industrial Group and Chengdu GaoxinInvestment

a 90% equity interest in Wuhan Tianma from Hubei Technology Investment a 100% equity interest in Shanghai Optoelectronics from AVIC International Holding Corporation

and AVIC Shenzhen

a 100% equity interest in Shenzhen Opto-electronics from AVIC International Holding Corporationand AVIC Shenzhen

In view of its fast-growing market of smart phones and other handset devices, Tian Ma has seen improving

profitability, which is also credit positive for AVIC International. According to the results forecast Tian Ma

announced 28 October, net profit attributable to shareholders for 2013 is expected to increase by 90%-130% year on year.

ai Huice President - Senior Credit [email protected]

indy Yangssociate [email protected]
https://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052https://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052https://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052https://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052https://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052https://www.moodys.com/credit-ratings/AVIC-International-Holding-Corporation-credit-rating-823392052


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Infrastructure

Brazil Oil Production Outlook Grows, Benefiting Drillships

Last Tuesday, the independent International Energy Agency (IEA) published its2013 World Energy

Outlook,in which it forecast thatBrazil(Baa2 stable) will account for one third of the net growth in global

oil production until 2035. IEA estimates that the recently discovered pre-salt oil fields will triple Brazils oil

production capacity to 6 million barrels of oil/day by 2035.

We expect the exploration of Brazils new oil fields will keep demand high for ultra deepwater drilling

vessels and partially offset increased competition from greater equipment supply, a credit-positive

development for all Brazilian rated drillships and floating production storage and offloading projects.

At IEAs forecast production levels,Petroleo Brasileiro SA Petrobras(Baa1 negative) would become the

global leader in offshore deepwater production. Petrobras has outsourced the exploration of oil in Brazils

ultra deepwater fields via charter and operation agreements, driven primarily by the companys capitalconstraints owing to its substantial capital program, which is set to reach $236.7 billion over the 2013-17

period.9

We expect Brazils increased oil production to be positive for projects that have recontracting risk, such as

Odebrecht Offshore Drilling Finance Limited(Baa3 stable). The project consists of a portfolio of three

state-of-the-art vessels -- two drillships, ODN I and ODN II; and a submersible, Norbe VI. Norbe VIs

contract with Petrobras expires four years prior to Odebrechts Baa3 senior secured $1.69 billion notes

maturity. In the event of a successful exploration of the pre-salt oil fields, the likelihood increases that

Norbe VI will renew its contract with Petrobras, resulting in more stable and predictable cash flow for the

entire transaction.

Other drilling vessel operators that we expect will be positively affected areSchahin II Finance Company(SPV) Limited(Baa3 stable),Odebrecht Drilling Norbe VII/IX Ltd.(Baa3 stable), andLancer Finance

Company (SPV) Limited(Baa3 stable).

Petrobras has contracted for an additional 42 drilling rigs for 2014-20, anticipating that future demand will

be limited to specific situations and needs, such as rig-construction delays. As contracts with foreign-built

vessels expire by 2016, the company expects to replace them with Brazilian-built drilling equipment, but

delivery delays from Brazils nascent ship building industry are likely. When production in the massive

deepwater fields fuels demand for ultra deepwater drilling vessels, as well as for foreign-built vessels, those

projects that can deliver equipment will have additional bargaining power to negotiate better daily rates and

other contract terms.

9 SeeBrazil: The Hotspot for Drillships and FPSOs,25 September 2013.

lexandre de Almeida Leiteice President - Senior [email protected]

ose Avilassociate Analyst55.11.3043.7307

[email protected]
http://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.htmlhttp://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.htmlhttp://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.htmlhttp://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.htmlhttps://www.moodys.com/credit-ratings/Brazil-Government-of-credit-rating-114650https://www.moodys.com/credit-ratings/Brazil-Government-of-credit-rating-114650https://www.moodys.com/credit-ratings/Brazil-Government-of-credit-rating-114650https://www.moodys.com/credit-ratings/Petroleo-Brasileiro-SA-PETROBRAS-credit-rating-603100https://www.moodys.com/credit-ratings/Petroleo-Brasileiro-SA-PETROBRAS-credit-rating-603100https://www.moodys.com/credit-ratings/Petroleo-Brasileiro-SA-PETROBRAS-credit-rating-603100https://www.moodys.com/credit-ratings/Odebrecht-Offshore-Drilling-Finance-Limited-credit-rating-823415255https://www.moodys.com/credit-ratings/Odebrecht-Offshore-Drilling-Finance-Limited-credit-rating-823415255https://www.moodys.com/credit-ratings/Schahin-II-Finance-Company-SPV-Limited-credit-rating-823071202https://www.moodys.com/credit-ratings/Schahin-II-Finance-Company-SPV-Limited-credit-rating-823071202https://www.moodys.com/credit-ratings/Schahin-II-Finance-Company-SPV-Limited-credit-rating-823071202https://www.moodys.com/credit-ratings/Schahin-II-Finance-Company-SPV-Limited-credit-rating-823071202https://www.moodys.com/credit-ratings/Odebrecht-Drilling-Norbe-VIIIIX-Ltd-credit-rating-822259074https://www.moodys.com/credit-ratings/Odebrecht-Drilling-Norbe-VIIIIX-Ltd-credit-rating-822259074https://www.moodys.com/credit-ratings/Odebrecht-Drilling-Norbe-VIIIIX-Ltd-credit-rating-822259074https://www.moodys.com/credit-ratings/Lancer-Finance-Company-SPV-Limited-credit-rating-822236617https://www.moodys.com/credit-ratings/Lancer-Finance-Company-SPV-Limited-credit-rating-822236617https://www.moodys.com/credit-ratings/Lancer-Finance-Company-SPV-Limited-credit-rating-822236617https://www.moodys.com/credit-ratings/Lancer-Finance-Company-SPV-Limited-credit-rating-822236617http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_158675http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_158675http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_158675http://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.htmlhttp://www.moodys.com/viewresearchdoc.aspx?docid=PBC_158675https://www.moodys.com/credit-ratings/Lancer-Finance-Company-SPV-Limited-credit-rating-822236617https://www.moodys.com/credit-ratings/Lancer-Finance-Company-SPV-Limited-credit-rating-822236617https://www.moodys.com/credit-ratings/Odebrecht-Drilling-Norbe-VIIIIX-Ltd-credit-rating-822259074https://www.moodys.com/credit-ratings/Schahin-II-Finance-Company-SPV-Limited-credit-rating-823071202https://www.moodys.com/credit-ratings/Schahin-II-Finance-Company-SPV-Limited-credit-rating-823071202https://www.moodys.com/credit-ratings/Odebrecht-Offshore-Drilling-Finance-Limited-credit-rating-823415255https://www.moodys.com/credit-ratings/Petroleo-Brasileiro-SA-PETROBRAS-credit-rating-603100https://www.moodys.com/credit-ratings/Brazil-Government-of-credit-rating-114650http://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.htmlhttp://www.iea.org/newsroomandevents/pressreleases/2013/november/name,44368,en.html


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Banks

M&T Wells Notice and Justice Department Probe Add to Compliance Woes

Last Tuesday,M&T Bank Corporation(A3 stable) disclosed in its third-quarter Form 10-Q that the US

Securities and Exchange Commission (SEC) had issued its subsidiary,Wilmington Trust Corporation(A3

stable), a Wells notice in connection with an investigation into Wilmington Trusts financial reporting and

securities filings before M&T acquired it. The company also disclosed that the US Department of Justice is

conducting an investigation into Wilmington Trust for similar issues and certain commercial real estate

lending relationships at the operating bank level, also before its acquisition by M&T.

These regulatory actions are credit negative because they come as M&T is involved in firm-wide

remediation of deficiencies in its compliance with the Bank Secrecy Act and anti-money laundering laws

and its pending acquisition of Hudson City Bancorp, Inc. (unrated). Also, because the Wilmington

investigations could result in civil or criminal penalties, they have the potential to divert management and

company resources during a critical period.

The receipt of a Wells notice is a significant escalation by the SEC, signaling that the regulator may bring a

civil action against a company and its management. Upon receiving a Wells notice, a recipient can explain

to the SEC why it should not bring an action. In its latest 10-Q, M&T disclosed that the SEC issued a

Wells notice to Wilmington Trust on 5 August 2013, to which Wilmington Trust responded on 20

September. In Wilmington Trusts 2010 10-K, the last one filed before M&T acquired it in May 2011, its

only disclosures were about an open comment letter regarding credit review, substandard and

nonperforming loans, impaired loans, collateral values, goodwill and the deferred tax asset valuation

allowance, which led to the subsequent investigations.

M&T disclosed that the investigations are ongoing and the companys lawyers have met with the SEC and

Justice Department. M&T estimated possible losses of up to $70 million above existing reserves from allpending legal proceedings.

Although this amount is not large, equaling 4% of M&Ts trailing 12-month pre-tax income, an escalation

in either investigation and the discovery of additional control issues could increase litigation costs and divert

senior managements time from operational and strategic issues. For example, M&Ts merger with Hudson

City, which M&T already postponed to 31 January 2014 from 27 August 2013 because of the Bank

Secrecy Act and anti-money laundering deficiencies, could be derailed and frustrate M&Ts efforts to build

up its currently small presence in New Jersey.

Mark Vassilakisice President - Senior Analyst1.212.553.2997

[email protected]
https://www.moodys.com/credit-ratings/MT-Bank-Corporation-credit-rating-287200https://www.moodys.com/credit-ratings/MT-Bank-Corporation-credit-rating-287200https://www.moodys.com/credit-ratings/MT-Bank-Corporation-credit-rating-287200https://www.moodys.com/credit-ratings/Wilmington-Trust-Corporation-credit-rating-600033362https://www.moodys.com/credit-ratings/Wilmington-Trust-Corporation-credit-rating-600033362https://www.moodys.com/credit-ratings/Wilmington-Trust-Corporation-credit-rating-600033362https://www.moodys.com/credit-ratings/Wilmington-Trust-Corporation-credit-rating-600033362https://www.moodys.com/credit-ratings/MT-Bank-Corporation-credit-rating-287200


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Rise in Large Company Bankruptcies Is Credit Negative for Brazilian Banks

Last Monday, Serasa Experian published a report on corporate bankruptcies in Brazil that showed a 34%

year-over-year increase in bankruptcy protection filings in the third quarter. The uptick in bankruptcies is

credit negative for Brazilian banks, whichincreased their lending to corporations in recent years.

Bankrupt companies efforts to restructure debt will likely lead to losses for those banks that have expanded

their corporate loan books. The largest year-over-year increase in bankruptcies, at 53%, was among large

Brazilian companies with more than BRL50 million in annual revenues, a segment that both large and smal

banks targeted in recent years for increased lending.

As shown in the exhibit below, the reported increase is in line with the slowdown in Brazils economy, with

the countrys GDP slowing to 0.9% in 2012 from 7.5% in 2010. The resulting decline in bank asset quality

will affect large banks, which have traditionally had significant exposure to large companies, and lenders to

small and midsize enterprises (SME banks) that have recently begun lending to large companies.

Large Brazilian Company Bankruptcy Filings, Rolling 12-Month

Note: Large Companies are defined as those with more than BRL50 million in annual revenue

Source: Serasa Experian

In response to a rise in delinquencies among small and midsize enterprises starting in 2010, Brazils smaller

banks began shifting their lending towards larger companies, which they perceived as being less risky.

However, smaller credit spreads on loans to larger corporate clients have pressured SME banks profitability

which has already been affected by Brazils weakening economy. In addition, higher concentrations of loans

to large Brazilian companies among SME banks have made them more susceptible to defaults arising from

increased bankruptcies in that market segment.

The effect of the bankruptcy trends is already revealing itself in SME banks third-quarter results. Among al

publicly traded banks in Brazil, onlyBanco ABC Brasil S.A.(Baa3 stable, D+/baa3 stable)10reported a risein profitability.Banco Daycoval S.A.(Baa3 stable, D+/baa3 stable) reported a rise in overall delinquencies

to 2.8% in the third quarter from 1.6% a year earlier, largely because of a 200-basis-point rise in corporate

delinquencies to 4.4%. Similarly,Banco Industrial do Brasil S.A.(Ba2 stable, D/ba2 stable) reported

10 The bank ratings shown in this report are the banks deposit rating, their standalone bank financial strength ratings/baseline crediassessment and the corresponding rating outlooks.

0

20

40

60

80

100

120

140

arooq Khanssociate Analyst55.11.3043.7087

[email protected]
https://www.moodys.com/credit-ratings/Banco-ABC-Brasil-SA-credit-rating-600012593https://www.moodys.com/credit-ratings/Banco-ABC-Brasil-SA-credit-rating-600012593https://www.moodys.com/credit-ratings/Banco-ABC-Brasil-SA-credit-rating-600012593https://www.moodys.com/credit-ratings/Banco-Daycoval-SA-credit-rating-807510343https://www.moodys.com/credit-ratings/Banco-Daycoval-SA-credit-rating-807510343https://www.moodys.com/credit-ratings/Banco-Daycoval-SA-credit-rating-807510343https://www.moodys.com/credit-ratings/Banco-Industrial-do-Brasil-SA-credit-rating-808692045https://www.moodys.com/credit-ratings/Banco-Industrial-do-Brasil-SA-credit-rating-808692045https://www.moodys.com/credit-ratings/Banco-Industrial-do-Brasil-SA-credit-rating-808692045https://www.moodys.com/credit-ratings/Banco-Industrial-do-Brasil-SA-credit-rating-808692045https://www.moodys.com/credit-ratings/Banco-Daycoval-SA-credit-rating-807510343https://www.moodys.com/credit-ratings/Banco-ABC-Brasil-SA-credit-rating-600012593


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worsening delinquencies owing to large problem single-loan exposures, which resulted in its nonperforming

loan ratio rising to 3.31% in the first half of 2013 from 0.6% a year earlier.

Although Brazilian banks remain generally well capitalized, the rise in bankruptcy filings adds another

challenge to the more difficult operating environment we expect in 2014. Inflation remains high andinterest rates have been rising, which adds pressure to funding costs and profitability. Any deterioration in

corporate loan asset quality may offset some of the improvements that Brazilian banks have made elsewhere

on their balance sheets, especially in consumer lending, where delinquencies fell to 7.0% in September

2013 from 8.2% a year earlier.


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Eurobanks Capital Increase Plans and Staff Reductions Are Credit Positive

On Friday,Eurobank Ergasias S.A.(Caa2 negative, E/caa3 stable)11announced that it will initiate a share

capital increase process to raise approximately 2 billion. The announcement followed media reports on

Wednesday that Eurobank and the state-owned Hellenic Financial Stability Fund (HFSF), which owns

95.2% of the bank, had agreed with the European Commission, European Central Bank and International

Monetary Fund (collectively known as the Troika) to privatise the bank by the end of January 2014, with

various foreign investors expressing interest. In addition, the banks voluntary worker layoff scheme

launched earlier this month will exceed its goal of reducing its headcount by 700.

These developments are credit positive for the bank because they will enhance its relatively weak capital

base, with ownership of the bank gradually reverting back to private investors, and lower its cost base.

A privatisation through the issuance of new shares by the end of January 2014, which would follow the

HFSFs 5.8 billion recapitalisation of Eurobank in June 2013 that took place without private investor

involvement, would meet the first-quarter 2014 target envisaged by the local recapitalisation law. The

privatisation would also enhance the banks relatively weak core Tier 1 (CT1) ratio, which was 8.1% at the

end of June and below the 9% minimum required by the Bank of Greece.

We estimate that Eurobank will need to raise at least 2 billion of new capital from its privatisation in order

to raise its CT1 ratio to more than 13%. Such a level is necessary for Eurobank to absorb any future loan

losses considering its high level of nonperforming loans (25.3% of gross loans as of June 2013) and modest

provisioning coverage of 50%. Moreover, its CT1 ratio would be comparable to peersAlpha Bank AE

(Caa2 negative, E/caa3 stable), whose CT1 ratio was 13.9% at the end of June, andPiraeus Bank S.A.

(Caa2 negative, E/caa3 stable), whose CT1 ratio was 13.8%. Additional capital would also help Eurobank

meet the capital needs that are likely to emerge when BlackRock conducts its second assessment of credit

losses for Greek banks, which the Bank of Greece commissioned and is due to be completed by the end of

this month.

According to media reports, there are currently three foreign investment funds that have expressed interest

in investing in Eurobank, which suggests that privatisation is feasible. However, we note that the HFSF is

likely to have veto power over important strategic decisions given that it will likely retain a significant stake

in the bank for some time.

Eurobanks success in reducing its headcount is also credit positive because it provides additional relief to its

cost base. Although top- and bottom-line profitability will remain under pressure from Greeces persistently

adverse operating environment, we estimate that the staff cuts will reduce staff expenses by around 5%,

thereby helping the bank to improve its pre-provision income (PPI) following the takeover in July of two

smaller bridge banks, New Hellenic Post Bank (unrated) and New Proton Bank (unrated).

As of June 2013, the banks six-month PPI was a low 190.3 million after operating expenses of 496.5

million, and the bank estimates annual pre-tax synergies of around 200 million by 2015 from its recent

bank acquisitions.

11 The bank ratings shown in this report are the banks deposit rating, its standalone bank financial strength rating/baseline crediassessment and the corresponding rating outlooks.

ondas Nicolaidesice President - Senior [email protected]
https://www.moodys.com/credit-ratings/Eurobank-Ergasias-SA-credit-rating-600020611https://www.moodys.com/credit-ratings/Eurobank-Ergasias-SA-credit-rating-600020611https://www.moodys.com/credit-ratings/Eurobank-Ergasias-SA-credit-rating-600020611https://www.moodys.com/credit-ratings/Alpha-Bank-AE-credit-rating-600017604https://www.moodys.com/credit-ratings/Alpha-Bank-AE-credit-rating-600017604https://www.moodys.com/credit-ratings/Alpha-Bank-AE-credit-rating-600017604https://www.moodys.com/credit-ratings/Piraeus-Bank-SA-credit-rating-600044265https://www.moodys.com/credit-ratings/Piraeus-Bank-SA-credit-rating-600044265https://www.moodys.com/credit-ratings/Piraeus-Bank-SA-credit-rating-600044265https://www.moodys.com/credit-ratings/Piraeus-Bank-SA-credit-rating-600044265https://www.moodys.com/credit-ratings/Alpha-Bank-AE-credit-rating-600017604https://www.moodys.com/credit-ratings/Eurobank-Ergasias-SA-credit-rating-600020611


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BNP Paribas Acquisition of Minority Stake in BNP Paribas Fortis Is Credit Positive

Last Wednesday,BNP Paribas(BNPP, A2 stable, C-/baa2 stable)12announced that it had agreed to buy the

Belgian governments 25% stake inBNP Paribas Fortis SA/NV(BNPP Fortis; A2 stable, C-/baa1 stable)

for 3.25 billion. The transaction, which gives BNPP full control over BNPP Fortis, is credit positive for

BNPP because it allows BNPP to fully exploit cost synergies at the subsidiary.

moody's credit outlook - november 18 2013

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