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MOODYS.COM
9 NOVEMBER 2017
NEWS & ANALYSIS Corporates 2 » Sears plans deep round of store closures, a credit negative » America Movil will benefit from Mexico lifting zero
interconnection rates
Infrastructure 4 » Atlantica Yield's strategic partnership with Algonquin is
credit positive » Michigan's Bishop International Airport loses Southwest
Airlines, a credit negative
Banks 7 » Russia proposes higher capital requirements for low down
payment mortgages, a credit positive » Eurobank Ergasias redeems state preference shares with Tier 2
subordinated notes, increasing its funding costs » Resignation of Lebanon's prime minister is credit negative
for banks » Bahraini banks' increased sovereign exposure is credit negative » Saudi banks' steady net interest income growth is
credit positive » United Arab Emirates banks' funding conditions improve, a
credit positive » Daiwa's investment in a new fintech venture is credit positive
Sovereigns 21 » "Paradise Papers" renew focus on low-tax jurisdictions, a key
risk for the Isle of Man » Lebanese prime minister's resignation risks renewing a political
vacuum, a credit negative
US Public Finance 23 » Maine Medicaid expansion increases state's budget risks
RECENTLY IN CREDIT OUTLOOK
» Articles in Last Monday’s Credit Outlook 25 » Go to Last Monday’s Credit Outlook
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NEWS & ANALYSIS Credit implications of current events
2 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Corporates
Sears plans deep round of store closures, a credit negative Last Friday, Sears Holdings Corporation (Caa2 stable) announced a new round of store closures as it continues to reduce its number of unprofitable stores. Although it is positive that the company continues to optimize its store base, the overall number of store closures is credit negative and indicates deeper strain as chronically weak sales adversely affect the company. Sears now expects to slash its store base to around 988 stores at 31 January 2018, a 30% reduction versus 31 January 2017 levels.
The company also faces significant problems at its Kmart franchise, which has had meaningful market share erosion. Store counts continue to decline more rapidly at Kmart compared with Sears; we estimate a 42% decline to 430 Kmart locations by the end of January 2018 from 735 in January 2017.
As of 29 July 2017, Sears had $407 million available under its $1 billion short-term borrowing basket and $191 million available under its revolver. During third-quarter 2017, Sears raised $200 million in incremental term loans from affiliates controlled by ESL Investments, its largest shareholder. The incremental liquidity will support its inventory purchases for the upcoming holiday season. Additional store closures will reduce working capital needs as inventory from closed stores is liquidated.
Sears’ rating reflects the company’s operating losses, which we estimate at approximately $1.8 billion in 2017. Although the company continues to take significant steps to reduce costs and rightsize its store base, operational strategies to date have not allowed the company to return to positive free cash flow. Its debts are significant, with approximately $4.2 billion of funded debt at the end of the July 2017 and unfunded pension and retirement obligations of approximately $1.7 billion.
Sears’ ratings could be downgraded if Sears’ unencumbered asset base continues to erode while adjusted EBITDA losses remain significant and asset sale proceeds are primarily used to fund operating losses. Ratings could also be downgraded if the company’s liquidity were to become more constrained, operating losses widened beyond current levels, or if Sears’ probability of default were to otherwise increase.
Christina Boni Vice President - Senior Analyst +1.212.553.0514 [email protected]
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
NEWS & ANALYSIS Credit implications of current events
3 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
America Movil will benefit from Mexico lifting zero interconnection rates Last Thursday, Mexico’s federal telecom regulator announced new interconnection rates that allow America Movil (AMX, A3 stable), the country’s biggest incumbent wireless operator, to begin charging competitors in January for access to its mobile network for the first time since Mexico began its telecom reform effort in 2014. The decision by the Instituto Federal de Telecomunicaciones (IFT) is credit positive for AMX, and will marginally boost its EBITDA while competitors will absorb higher operating costs from the interconnection fees beginning in January 2018. The IFT decision follows the country’s August 2017 Supreme Court ruling that the IFT must determine interconnection rates, thereby rendering the existing rates unconstitutional.
The IFT’s rate change adds to an easing of competitive pressures for AMX during 2017. Although the revised rates still result in wide asymmetry, the fees AMX can now collect will reduce its competitors’ capacity to offer cheaper mobile packages, while directly benefiting AMX’s cash flow. Competing wireless telecom companies that pay no interconnection rates to AMX today will now have to pay a mobile termination rate of MXN2.9 cents per minute. AMX will pay MXN11.3 cents per minute for mobile calls ending outside of its network, a lower rate than the MXN19.0-cent (approximately one US cent/minute) rate it pays today.
Charging interconnection fees will give AMX slightly better pricing power, but Mexico’s mobile telecom market will remain competitive and heavily regulated. The ability to charge competitors interconnection fees could be worth as much as a 5%-7% increase in AMX’s EBITDA from Mexico, translating to around 2% on a consolidated basis. But the extent of incremental benefits will depend on competing operators, which could respond by making off-network calls more costly for consumers.
Regulatory intervention in Mexico remains intense as well. The IFT in March 2017 demanded that AMX separate the retail and wholesale network businesses of Telmex, AMX’s fixed-line subsidiary in Mexico, effectively unbundling its local loop.
Still, as Mexico’s telecom industry gravitates increasingly toward data services, changes to voice-related interconnection rates will become less important to AMX’s earnings. For now, however, charging interconnection fees will help stabilize AMX’s profitability in its largest cash-generating market.
Marie Fischer-Sabatie Senior Vice President +52.55.1555.5312 [email protected]
Whitney Leavens Associate Analyst +52.55.1555.5748 [email protected]
NEWS & ANALYSIS Credit implications of current events
4 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Infrastructure
Atlantica Yield’s strategic partnership with Algonquin is credit positive On 1 November, Abengoa S.A., the sponsor of Atlantica Yield plc (B1 stable), and Algonquin Power & Utilities Corp. announced that they had agreed to create a strategic partnership. Under the terms of the agreement and pending regulatory approvals and other conditions, Algonquin will acquire from Abengoa a 25% interest in Atlantica for $24.25 per share, or approximately $600 million. Algonquin also has an option to purchase Abengoa’s remaining 16.5% stake in Atlantica for an additional $400 million by 31 March 2018. If completed, Algonquin would become Atlantica’s largest shareholder with a 41.5% interest stake.
The agreement is credit positive for Atlantica, eliminating the possibility that Abengoa would sell Atlantica to a weaker sponsor with an aggressive management that would have worsened Atlantica’s credit quality. Algonquin is a financially stable sponsor and Atlantica will not incur incremental debt to help fund the acquisition, nor will its 80% target dividend payout ratio change. Atlantica’s strong corporate governance also will remain in place: Atlantica’s corporate governance provisions limit Algonquin’s ownership stake to 41.5% and its board of director appointees to fewer than half the number of Atlantica’s board of directors. Initially, Algonquin will appoint two of the eight directors.
The agreements will improve Atlantica’s growth opportunities, and equity contributions will help fund the purchase of new assets. As part of the strategic partnership, Algonquin, Abengoa and Atlantica signed a non-binding term sheet that includes the execution of a new right of first offer agreement with AAGES, a joint venture between Algonquin and Abengoa, to develop and build clean energy and water infrastructure contracted assets. Atlantica estimates that the new agreements with AAGES make its pipeline of contracted assets between $600 million and $800 million in 2018 and 2019, and $200 million per year afterward, compared with a total investment under the right of first offer agreement of $834 million between 2015 and June 2017, and no significant acquisition since September 2015.
The pipeline includes a 230-megawatt combined cycle power generation plant in Mexico, a 210-megawatt solar project in Chile, a 20% stake in a 135-mile water transportation asset in the US and up to 51% ownership stakes in two South African solar projects that total 150 megawatts. The agreements include an option for Algonquin to contribute $100 million in equity to help fund Atlantica’s expansion as well as preferred rights to participate in future capital increases up to the maximum equity stake of 41.5%.
The agreements, including Algonquin’s acquisition of the stakes in Atlantica, are subject to consents and waivers. They include authorization from the US Department of Energy, the lender for Atlantica’s US solar projects Solana and Mojave, for Abengoa to sell up to a 25% stake in the yieldco. The authorization to sell the additional 16.5% stake also is pending, and although the forbearance agreement between the Energy Department and Atlantica could restrict dividend distributions from these projects under certain circumstances, this is an unlikely scenario. Moreover, Atlantica is still in negotiations with the lenders of two of its projects: ACT, the combined cycle power generation plant in Mexico, and Kaxu, a South African solar project in which Atlantica holds a 51% interest.
Algonquin is a diversified North American company with a 1.5-gigawatt energy portfolio with mostly contracted wind, solar, hydroelectric and thermal assets in the US and Canada, and a regulated distribution and transmission US-based portfolio. Atlantica is a total return company that owns a diversified portfolio of contracted assets in solar, wind, and natural gas power generation; electric transmission; and water desalination assets in Spain, South Africa, Algeria, the US, Mexico, Chile, Peru and Uruguay.
Christian Hermann Associate Analyst +1.212.553.2912 [email protected]
Natividad Martel, CFA Vice President - Senior Analyst +1.212.553.4561 [email protected]
NEWS & ANALYSIS Credit implications of current events
5 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Michigan’s Bishop International Airport loses Southwest Airlines, a credit negative On 2 November, Southwest Airlines Co. (A3 stable) announced that it would stop all service at Flint, Michigan’s Bishop International Airport by June 2018. The loss of Southwest is credit negative for Bishop International Airport Authority, Michigan (Baa3 stable) because it will increase Bishop Airport’s cost per enplanement for the remaining airlines to $3.13 from $2.10, weakening the airport’s competitive position against nearby large-hub Detroit Metropolitan Wayne County Airport (Wayne County Airport Authority, Michigan, A2 stable).
Since Southwest acquired Air Tran in 2012, the carrier has been a major airline for the airport, generating 129,500 enplanements in 2016, 33% of the airport’s total traffic (see exhibit). Although Southwest was the second-largest carrier in terms of enplanements in 2016 behind Delta Air Lines, Inc. (Baa3 stable) with 160,739 enplanements, it was Bishop’s largest carrier in 2014 and 2015 and accounted for more than 40% of the airport’s enplanements. Since 2015, Southwest has reduced service, including canceling routes to Las Vegas; Orlando, Fort Myers and Tampa in Florida; and Baltimore-Washington. Southwest will stop flying its only remaining route – daily service to Chicago-Midway – in June 2018. After the loss of Southwest, the airport will still be serviced by Delta, American Airlines Inc. (Ba1 stable), United Continental Holdings, Inc. (Ba2 stable) and Allegiant Travel Company (Ba3 stable).
Bishop International Airport enplanements by carrier in 2016
Source: Bishop International Airport Audited Financial Report 2016
Although growth from recent entrant Allegiant may offset a small portion of the loss from Southwest, enplanements at Bishop will be negatively affected. Given that the air carrier accounts for one-third of the airport’s enplanements, we expect a corresponding decline of about 30% of enplanements.
Despite the loss in enplanements, the airport will be able to maintain financial metrics at their current level because of the residual cost-recovery mechanism in the airline lease and use agreement and an ad valorem tax the airport collects. Under the agreements with airlines, the airport has the ability to increase charges on the remaining carriers to maintain operating revenue at a sufficient level to recover operating expenses and maintain its debt service coverage ratio. Additionally, the airport levies an ad valorem tax on property in Genesee County, where the airport is located, which provides stable operating revenue of about $4 million. The property tax revenue accounts for about 28% of total revenue, and will not be affected by the loss of Southwest because it is not tied to airport activity. We expect that the authority’s debt service coverage ratio likely will remain 1.5x-1.6x over the next few years even after the loss of Southwest, in line with recent historical performance.
Southwest Airlines33%
Delta Air Lines40%
American Airlines10%
United11%
Allegiant6%
Duston Hodgkins Associate Analyst +1.212.553.6877 [email protected]
NEWS & ANALYSIS Credit implications of current events
6 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
As a result of increasing rates and charges on the remaining airlines, the airport’s cost per enplanement (CPE) will increase more than $1, weakening the airport’s competitive position. Bishop is a low-cost airport, with a CPE of $2.10 in 2016 because of the substantial tax support the airport receives. Its low cost is the airport’s primary competitive advantage against nearby Detroit Metropolitan Wayne County Airport. As the primary airport in the region, Detroit offers significantly more route and carrier options than Bishop, and is only about an hour away, but it has a significantly higher operating cost for airlines, with a CPE of $10.01 in 2016. We estimate that the loss of Southwest will increase the CPE to $3.13 for the remaining carriers at Bishop, weakening the airport’s cost competitive position. CPE is a consideration for airlines when reviewing current route offerings and potential future routes. A higher CPE risks weakening Bishop’s ability to attract new carriers or routes to make up for the loss of Southwest.
NEWS & ANALYSIS Credit implications of current events
7 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Banks
Russia proposes higher capital requirements for low down payment mortgages, a credit positive On 1 November, the Central Bank of Russia (CBR) published proposed amendments to risk weights for mortgages with down payments of 20% or less originated after 1 January 2018. The risk weight for mortgages with a 10%-20% down payment would be 150% and the risk weight for mortgages with down payments below 10% would be 200%. The proposed changes are credit positive for Russian mortgage lenders because they will force banks to demand higher down payments or set aside more capital against riskier loans.
Banks that would be most affected by the proposed changes are those with the highest share of mortgages in their loan book: DeltaCredit Bank (Ba1/Ba1 stable, ba31), VTB 24 (Ba1 stable, b1), Absolut Bank (B1/B1 negative, b1) and Vozrozhdenie Bank (B1 review for downgrade, b1 review for downgrade), as shown in Exhibit 1.
EXHIBIT 1
Russian banks with the highest share of mortgages in their loan book
Bank
Outstanding mortgages as of first-
half 2017, RUB billions
Share of mortgages in loan book as of first-half 2017
New mortgages issued in first-half 2017,
RUB billions Market share in
mortgages origination
DeltaCredit Bank 143 100% 22 3%
VTB 24 973 44% 155 20%
Absolut Bank 68 37% 10 1%
Vozrozhdenie Bank 49 24% 9 1%
AO Raiffeisenbank 92 18% 31 4%
Sberbank 2,698 14% 397 51%
Bank Saint-Petersburg 47 13% 10 1%
Russian Agricultural Bank 157 8% 25 3%
Gazprombank 240 7% 24 3%
Sources: Banks’ financials, Central Bank of Russia and Rusipoteka
The CBR’s proposed measure aims to contain credit risks in the mortgage sector amid its recent active growth (see Exhibit 2). Banks’ average annual mortgage loan growth for the past two years was 13%, driven by falling interest rates and stabilizing operating conditions. Average mortgage interest rates declined to 11.1% as of 1 October 2017 from 13.12% two years earlier following a decrease in the CBR’s key interest rate and lower inflation. We expect this trend to continue.
1 The bank ratings shown in this report are the bank’s deposit rating, senior unsecured debt rating (where available) and baseline
credit assessment.
Maria Malyukova Assistant Vice President - Analyst +7.495.228.6106 [email protected]
NEWS & ANALYSIS Credit implications of current events
8 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
EXHIBIT 2
Russian banks’ mortgage loan growth and overdue loans
Source: Central Bank of Russia
Mortgage loans with down payments of less than 20% (and a loan-to-value ratio of more than 80%) did not exceed 15% of newly originated loans in 2016-17. We believe that mortgage lenders either will increase down payment requirements to avoid higher risk weights or raise interest rates for riskier loans to compensate for more capital allocation in accordance with the new regulatory rules.
The credit quality of mortgage loans has been adequate so far. Banks’ nonperforming loan ratio for mortgages overdue more than 90 days was 2.4% as of 1 October 2017, down from 2.7% at year-end 2016, as shown in Exhibit 2. Nonperforming loans in absolute amounts have been stable and are supported by banks’ currently stable operating environment and almost no issues of foreign-currency-denominated loans, which are vulnerable to exchange-rate fluctuations.
0%
1%
2%
3%
4%
5%
6%
7%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
YE2008 YE2009 YE2010 YE2011 YE2012 YE2013 YE2014 YE2015 YE2016 Q32017
RU
B Tr
illio
ns
Outstanding mortgage loans - left axis New mortgage loans issued - left axisMortgages overdue 90+ days - right axis
NEWS & ANALYSIS Credit implications of current events
9 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Eurobank Ergasias redeems state preference shares with Tier 2 subordinated notes, increasing its funding costs Last Friday, Eurobank Ergasias S.A. (Caa3 stable, caa22), announced that it had redeemed its €950 million preference shares subscribed by the Government of Greece (Caa2 positive) with €950 million of Tier 2 subordinated notes that will carry an annual coupon of 6.4%. This instrument swap is in accordance with recently passed legislation (Law 4484/2017) that allows Greek banks with state preference shares to replace them with Tier 2 bonds and forego the need to repay them in cash. However, the Tier 2 bonds will increase the bank’s funding costs, while the redemption of the preference shares will also reduce its phase-in common equity Tier 1 (CET1) ratio by around 250 basis points, all credit negatives.
The Tier 2 bonds’ 6.4% coupon will increase the bank’s funding cost by around €60 million before tax. The extra funding cost will be a significant burden on the bank, which reported profit before tax of €103.6 million the first six months of 2017 and €226.4 million in 2016. In contrast, the state preference shares did not carry any additional cost for Eurobank, since the capital instrument was non-cumulative and had a coupon of 10% subject to meeting minimum capital adequacy requirements set by Bank of Greece and the availability of distributable reserves. Given that the bank had no distributable reserves because of accumulated losses and has not paid a dividend to ordinary shareholders since the issuance of these preference shares in May 2009, it benefitted from this source of state funding at zero cost.
According to the Basel III capital requirements, Eurobank’s state preference shares are not eligible for recognition as CET1 capital starting in January 2018. Accordingly, and regardless of the redemption of these preference shares with Tier 2 bonds, we estimate that the bank’s pro forma phased-in CET1 capital ratio will decline significantly to around 14.9% from 17.4% as of June 2017. The substitution of the state preference shares with Tier 2 bonds will at least ensure that Eurobank’s phased-in total capital adequacy ratio will remain at our estimate of around 17.7% as of June 2017 (see exhibit). The new Tier 2 bonds will have a 10-year maturity, be callable after five years, and are classified as subordinated instruments ranking senior to common shares. In addition, these Tier 2 notes are non-convertible and qualify as a minimum requirement for own funds and eligible liabilities instrument.
Eurobank Ergasias’ capital ratios after preference-share swap for Tier 2 bonds
Source: The bank
2 The bank ratings shown in this report are Eurobank Ergasias’ deposit rating and baseline credit assessment.
17.6% 17.3% 17.4%
14.9% 14.4%
17.9% 17.5% 17.7% 17.7% 17.1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Dec-16 Mar-17 Jun-17 Pro forma after swap Pro forma after swap fullyloaded Basel III ratios
Phased-in common equity Tier 1 Phased-in total capital adequacy
Nondas Nicolaides Vice President - Senior Credit Officer +357.25.693.006 [email protected]
Stelios Kyprou Associate Analyst +357.25.693.002 [email protected]
NEWS & ANALYSIS Credit implications of current events
10 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Concurrently, the bank has a relatively weak quality of capital given its proportionally high amount of deferred tax assets (DTAs) eligible as CET1 capital that total around €4 billion, which account for around 70% of its total CET1 capital, excluding state preference shares. These DTAs, which are eligible to be converted into deferred tax credits if certain conditions are met, are lower quality capital in view of Greece’s weak credit standing, which casts doubt on the government’s ability to meet such sizable DTAs. The bank’s relatively weak tangible common equity, excluding eligible DTAs, provides a thin loss-absorption cushion for creditors in the context of significantly high nonperforming exposures of around 44.1% of the bank’s gross loans as of June 2017.
NEWS & ANALYSIS Credit implications of current events
11 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Resignation of Lebanon’s prime minister is credit negative for banks Last Saturday, Lebanon’s (B3 stable) Prime Minister Saad Hariri announced his resignation via a televised address from Riyadh, Saudi Arabia. His resignation is credit negative for Lebanese banks because the heightened political risk may further delay economic and institutional reforms, adversely affecting banks’ profitability and asset quality. Political developments affect depositor confidence and may lead to conversions of deposits into US dollars, making it more difficult for Lebanon to attract the substantial foreign inflows, mainly in the form of private deposits at banks, needed to finance the country’s large current account and fiscal deficits.
The potential for renewed political paralysis will constrain Lebanon’s ability to enact economic policy, approve capital spending and much-needed reform, and adversely affect key sectors of the economy, such as real estate and construction, where activity remains muted. In addition, the situation also will weigh on overall private investment and consumption because confidence in Lebanon is closely related to political developments. Since the prime minister’s resignation, there is mounting concern about the 2018 budget missing the constitutional deadline for ratification (the recently passed 2017 budget was the first ratified budget in 12 years) and timely licensing of oil and gas exploration, which can only happen with a functioning government in place.
Slower economic growth will lead to loan delinquencies and slow banks’ domestic growth. However, pressure on loan performance will be partly offset by the enhanced solvency at banks following large general provisions accumulated in 2016 and higher capital requirements, which strengthened banks’ loss- absorption capacity.
Because of the political turmoil, depositors may convert Lebanese pound deposits into dollars or withdraw deposits. Therefore, to maintain steady financial inflows to fund Lebanon’s large government deficit (which we expect will average 9% in 2017 and 2018) and the private sector, banks may need to raise deposit interest rates, especially in light of rising global interest rates. The weighted average interest rate on dollar deposits rose to 3.65% in September 2017 from 3.43% in September 2016 as liquidity tightened and the US Federal Reserve continued to hike US rates.
Banks also will need to hike rates on Lebanese pound deposits to contain deposit dollarisation. The Banque du Liban (Lebanon’s central bank) has yet to hike its benchmark rates in response, but instead engaged in a large financial engineering transaction with banks in 2016 aimed at stimulating deposit growth and shoring up its foreign reserves. The Banque du Liban also is undertaking a number of transactions this year that provide banks with higher returns on their placements at the central bank, which will allow banks to offer higher rates to attract and maintain deposits.
Although capital flight remains a significant risk for both the banks and the sovereign given the government’s dependence on domestic banks for financing, Lebanon’s financial sector has weathered periods of extreme strain in the past. Despite one to two months of deposit outflows, deposit growth resumed and private-sector deposits still grew by 4% overall in 2005 following the assassination of then-Prime Minister Rafiq Hariri, and 7% in 2006, when a 33-day war was fought between Hezbollah in Lebanon and Israel (see exhibit below).
Marina Hadjitsangari Associate Analyst +357.25.693.034 [email protected]
Alexios Philippides Assistant Vice President - Analyst +357.25.693.031 [email protected]
NEWS & ANALYSIS Credit implications of current events
12 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Deposit dollarisation increases and deposit outflows occur with the onset of political turmoil in Lebanon but then deposit growth resumes
Sources: Banque du Liban and Moody’s Investors Service
Banque du Liban’s high gross foreign assets, which were a record $43.5 billion as of 31 October (excluding gold reserves), together with Lebanese banks’ international placements, cover around one-third of total customer deposits. These foreign assets provide a significant defense against the effects of a possible capital flight and underpin the Lebanese pound’s peg to the US dollar.
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
80%
-$3
-$2
-$1
$0
$1
$2
$3
$4
Dec
-03
Apr-0
4Au
g-04
Dec
-04
Apr-0
5Au
g-05
Dec
-05
Apr-0
6Au
g-06
Dec
-06
Apr-0
7Au
g-07
Dec
-07
Apr-0
8Au
g-08
Dec
-08
Apr-0
9Au
g-09
Dec
-09
Apr-1
0Au
g-10
Dec
-10
Apr-1
1Au
g-11
Dec
-11
Apr-1
2Au
g-12
Dec
-12
Apr-1
3Au
g-13
Dec
-13
Apr-1
4Au
g-14
Dec
-14
Apr-1
5Au
g-15
Dec
-15
Apr-1
6Au
g-16
Dec
-16
Apr-1
7Au
g-17
$ Bi
llion
s
Monthly private sector deposit growth - left axis Deposit dollarisation - right axis
Assassination of Prime Minister Rafiq Hariri
Israeli - Hezbollah warDoha agreement
Collapse of national unity goverment
Syrian uprisingResignation of Prime Minister Najib Mikati
Presidental political vacum
Election of President Michel Aoun
NEWS & ANALYSIS Credit implications of current events
13 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Bahraini banks’ increased sovereign exposure is credit negative Last Thursday, the Central Bank of Bahrain (CBB) issued its monthly statistical bulletin, which indicated that onshore retail banks’ exposure to Bahrain (B1 negative) government securities was 27% of total domestic assets at 30 September, up from around 7% at year-end 2009. The continued increase is credit negative because the high credit concentration strongly links the banks’ creditworthiness to the sovereign.
The Bahraini retail banking system consists of 29 banks (22 conventional and seven Islamic banks) with combined total assets of BDH31.7 billion ($84 billion) as of September 2017. Given that Bahrain’s retail banking system is more than 2.5x the country’s GDP of $31.9 billion as of year-end 2016, the government’s ability to support the retail bank sector in the event of need becomes more difficult as its own credit quality or ability to raise more debt weakens.
Per CBB data, banks’ holdings of government securities rose 11% to BHD4.8 billion in the first nine months of 2017, versus a year earlier. Government securities comprised 27% of banks’ total domestic assets (see exhibit) and 167% of the banking system’s equity as of 30 September 2017. The National Bank of Bahrain BSC (B1 negative, b13) has the highest exposure among the banks we rate at more than 3x its equity. The domestic banking sector’s exposure to the government increased rapidly as government debt started rising significantly in 2009, when Bahrain began running fiscal deficits during the financial crisis, and it continued to rise as lower oil prices negatively pressured its fiscal balances. Bahrain’s debt/GDP ratio rose to around 73% at year-end 2016 and we estimate that it will rise to above 90% in 2018 from just 12.6% at year- end 2008.
Bahraini retail banks’ increasing government securities holdings in their domestic book expose them to the sovereign
Sources: Central Bank of Bahrain and Moody’s Investors Service
We expect banks’ exposure to the government to expand as government borrowing increases in the absence of significant revenue and expenditure reform and given that oil prices continue to trade below the $99 fiscal breakeven for Bahrain that the International Monetary Fund estimates for 2017. We downgraded Bahrain’s sovereign rating to B1 negative from Ba2 negative in July because we expect Bahrain’s government debt burden and debt affordability to deteriorate over the next two to three years.
3 The bank ratings shown in this report are the National Bank of Bahrain’s deposit rating and baseline credit assessment.
7%
10%
13% 14%
19% 21% 22%
25%27%
0%
5%
10%
15%
20%
25%
30%
0
2
4
6
8
10
12
14
16
18
20
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Sep-17
BHD
Bill
ions
Other assets Government securitiesGovernment loans Private non-banksBanks Cash & central bankGeneral government securities % total domestic assets - right axis
Ortanza Sequeira Associate Analyst +357.25.693.035 [email protected]
Ashraf Madani Vice President - Senior Analyst +971.42.379.542 [email protected]
NEWS & ANALYSIS Credit implications of current events
14 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Despite the challenging operating environment, Bahraini banks continued to report strong profitability ratios, with the net income to tangible banking asset ratio rising to 1.6% in 2016 from 1.3% for 2013-15, which mainly reflects rising yields on government securities. The banking sector’s health is further apparent in its sound capital adequacy, with the ratio of systemwide average tangible common equity to total risk-weighted assets at 12.2% for 2013-16, and a ratio of solid systemwide total liquid assets to tangible banking assets at 34.5% as of year-end 2016. The banking system maintained relatively stable asset quality (defined as problem loans/gross loans) of around 6% during 2013-16 despite high loan concentrations in the troubled construction and real estate sector.
We expect the asset quality ratio to deteriorate slightly and profitability to be adversely affected by rising provisions. We expect banks’ holding of government debt to increase, reinforcing the link between the banking sector creditworthiness and that of the sovereign. Deterioration in the government’s creditworthiness would negatively affect the credit quality of Bahraini banks given their high on-balance-sheet concentration of government debt and it would also adversely affect the Bahraini government’s ability to provide support to the banking sector if needed.
NEWS & ANALYSIS Credit implications of current events
15 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Saudi banks’ steady net interest income growth is credit positive Last Sunday, the last of Saudi Arabia’s 12 domestic banks submitted its preliminary financial results for the first nine months of 2017 to the Saudi stock exchange. During the first nine months of the year, banks’ net profits increased 3.2% year on year, mainly owing to rising net interest income and strong cost discipline, a credit positive. The positive results were achieved despite lower government spending and slowing economic activity (we expect real GDP to contract by 1% in 2017), which has led to negative lending growth and higher provisioning charges for most banks.
Despite a 2% year-on-year decline in net loans as of September 2017, net interest income rose by 8% in the first nine months of the year, driven by a 20-basis-point improvement in the net interest margin, up to 2.9% for the first three quarters of 2017. Such improvement reflected a combination of higher asset yields and easing funding costs.
In particular, Bank AlBilad (A3 stable, baa24) increased net interest income by 22% year on year owing to asset growth that was faster than the system average. Riyad Bank (A2 stable, baa1), Saudi Investment Bank (A3 stable, baa2) and Bank Al-Jazira (Baa1 stable, baa3) all increased their net interest income by more than 12% year on year despite loan book contraction, reflecting the continued upward re-pricing of their loans (see exhibit).
Saudi banks’ change in profits in first nine months of 2017 versus the same period in 2016
Sources: Saudi Arabia Stock Exchange and Moody’s Investors Service
Three successive rate hikes by the US Federal Reserve since December 2016, and the subsequent rise of lending rates by the Saudi Arabian Monetary Authority (SAMA), owing to the peg of the Saudi riyal to the US dollar, allowed domestic banks to re-price their loans, which provided a boost to interest income. Funding costs remained under control owing to a large proportion of low-cost or zero-cost demand deposits (exceeding 60% of deposits on average). At the same time, banks transferred their excess of low-yielding cash balances placed with SAMA (down 22% year to date as of September 2017) into investments in the latest government bonds and Sukuk issuances (up 30% year to date as of September 2017), which attract better returns.
Margin expansion also came from lower interest expenses (down 4% year on year) after the three-month Saudi Interbank Offered Rate normalised at around 1.8% in October 2017, down from a peak of 2.4% a year ago, reflecting improved liquidity in the banking system. Banks also reduced their reliance on expensive market funding and time deposits (down 4% year to date as of September 2017) amid lower asset growth.
4 The bank ratings shown in this report are the bank’s deposit rating and baseline credit assessment.
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Jonathan Parrod Associate Analyst +971.4.237.9546 [email protected]
Olivier Panis Vice President - Senior Credit Officer +971.4.237.9533 [email protected]
NEWS & ANALYSIS Credit implications of current events
16 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
In the context of limited growth opportunities, Saudi banks have successfully rationalised their cost bases. In the first nine months of 2017, operating expenses were up 1% year on year, following a 5% increase in the same period in 2016. Consequently, Saudi banks maintained a stable cost/income ratio of around 36% on average for the first nine months of 2017.
Higher net interest income and tight cost control offset the effect of lower non-interest revenue (down 8% year on year), and rising provisions on loans (up 24% year on year). Weak economic conditions drove down the volume of banks’ fee-based business such as trade and foreign-exchange transactions, and affected borrowers’ repayment capacity, leading to higher loan-loss provisioning for almost all Saudi banks.
Although we expect economic conditions to remain challenging over the next 12-18 months (we expect real GDP growth of 1.1% in 2018), Saudi banks’ profitability should remain resilient, supported by a gradual pick-up in credit demand combined with further loan re-pricing in a rising rate environment.
NEWS & ANALYSIS Credit implications of current events
17 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
United Arab Emirates banks’ funding conditions improve, a credit positive On Sunday, the Central Bank of the United Arab Emirates published its September 2017 Monthly Statistical Bulletin, which showed the United Arab Emirates (UAE, Aa2 stable) banking system’s net loan/deposit ratio had improved to 91% as of 30 September 2017, from 96% as of 30 September 2016, a credit positive.
The net loan/deposit ratio had been deteriorating, peaking at 96% in September 2016 after rising to 94% at year-end 2015 from 90% at year-end 2014 (see exhibit). Stabilisation in UAE banks’ funding primarily reflects higher oil prices: the Brent crude oil price averaged $52 during the first nine months of this year, up from $44 during 2016 and lows of around $26 earlier that year. Increased oil prices have improved corporate and government revenue (hydrocarbon contributed 41% of UAE central government’s revenue in 2016) and supported their deposits into banks.
Net loan/deposit ratio of UAE banks, December 2014-September 2017
Loans refer to domestic credit, which includes lending to resident non-banking financial institutions, trade bills discounted and loans and advances for government and public sector, and private sector (corporates and individuals) in local and foreign currency. Deposits exclude inter-bank deposits and bank drafts but include commercial prepayments and borrowings under repurchase agreements. Source: Central Bank of the United Arab Emirates
In addition, weak economic growth this year amid constrained public spending has reduced domestic business activity, limiting UAE banks’ lending opportunities and funding needs. Government spending is an important driver of economic growth in the UAE, accounting for 30% of GDP in 2016. Weak credit growth also reflected a reduction in the system’s balance sheet after the First Gulf Bank and National Bank of Abu Dhabi merged in March 2017 to create First Abu Dhabi Bank PJSC (FAB, Aa3 stable). Given FAB’s large 23% market share by assets as of June 2017, post-merger balance sheet optimisation affects system growth in 2017. Credit growth slowed to 0.1% over the 12 months that ended 30 September 2017 (down 0.5% non-annualised during the first nine months of 2017) from 5.8% during the 12 months that ended 30 September 2016.
A third driver of the stabilised funding conditions is the government’s international debt issuances of $10 billion in October 2017 and $5 billion in April 2016 (which also supported bank liquidity), compared with no international bond issuance between 2010 and 2015. Deposits from the UAE government and its related entities accounted for 25% of system deposits as of June 2017. The assumed full backing of the Government of Abu Dhabi supports the credit quality of the UAE.
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Mik Kabeya Analyst +971.4.237.9590 [email protected]
Badis Shubailat Associate Analyst +971.4.237.9505 [email protected]
NEWS & ANALYSIS Credit implications of current events
18 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
We expect UAE banks’ market funding reliance and liquid resources to remain broadly stable over the next 12-18 months. We expect banks to remain primarily deposit-funded, with moderate reliance on market funding. Deposits comprise around 70% of total non-equity funding at Moody’s-rated UAE banks. Market funding reliance was 16.3% of tangible banking assets in June 2017, compared with 18.7% in December 2016. Liquid resources also remained stable, at 30.8% of tangible banking assets at June 2017, versus 31.2% in December 2016.
However, we expect that banks funding costs will continue to increase as rising US interest rates translate into higher local currency rates through the UAE currency’s peg to the US dollar. The increase in funding costs owing to rising US rates follows a 2016 increase owing to tight liquidity amid oil price weakness. Interest expenses increased to 1.3% of average total funding at UAE banks during the first half of 2017, from 1.2% in 2016 and 0.9% during 2014-15.
NEWS & ANALYSIS Credit implications of current events
19 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Daiwa’s investment in a new fintech venture is credit positive On Monday, Daiwa Securities Group Inc. (Baa1 stable) announced that it will fund a new Japanese fintech company, Smart Plus Co., Ltd., with local fintech startup, Finatext Ltd. According to the Nikkei, Daiwa will invest several hundred million yen for around a 10% stake in the venture, which aims to start service in January 2018. The investment is credit positive for Daiwa because it will help diversify its income sources and, more importantly, broaden its customer base to include more young investors, who are critical for business growth in Japan’s aging population.
Smart Plus will offer online investment platforms designed mainly for smartphones, targeting young investors, who generally invest small amounts compared with more mature investors, who use conventional securities firms. Its first app, STREAM, aims to make it easy for novice investors to buy stocks using information on social media. Smart Plus will later launch platforms targeting intermediate or advanced investors to broaden its customer base.
Daiwa will handle orders placed on Smart Plus apps and will earn brokerage fees, although immediate financial benefits for Daiwa will be limited. In an earlier move to gain young customers, Daiwa in 2015 acquired a 9.6% stake in GMO Financial Holdings, Inc., formerly known as GMO CLICK Holdings, Inc., the parent company of the world’s largest foreign-exchange brokerage firm with online services popular among young investors.
Currently, individual investors in their 20s and 30s make up a small proportion of Daiwa’s customer base. Daiwa can use its experience with these online ventures to attract more young investors to its own businesses and lessen its dependence on older customers. A failure to gain new young customers would be credit negative because the passage of time naturally leads to the loss of older customers and a transfer of wealth to younger people. In Japan’s investment community, 38% of participants in the country’s Financial Services Agency’s latest annual survey on individual investors were older than 60, and outnumbered those under 50.
Daiwa’s main operating subsidiary, Daiwa Securities Co. Ltd., (A3 stable), the second-largest Japanese brokerage by assets under custody (AUC), competes with online securities firms that offer cheaper fees. Daiwa lags domestic online securities firms in customer account growth (see exhibit). Daiwa had 3.8 million accounts at the end of March 2017, up 13% from five years earlier, and ¥53.6 trillion in AUC, up 29% over the same period, according to the company.
Daiwa’s customer account growth lagged that of online rivals, 2013-17
Sources: Daiwa and Moody’s Investors Service
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Raymond Spencer Senior Vice President +81.3.5408.4051 [email protected]
Yuri Nishizaki Associate Analyst +81.3.5408.4048 [email protected]
NEWS & ANALYSIS Credit implications of current events
20 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
By comparison, SBI Securities Co., Ltd., the largest online securities firm in Japan in terms of the number of customer accounts and AUC, increased the number of accounts by 61% to 3.8 million and more than doubled AUC to ¥9.4 trillion as of 31 March 2017 from 31 March 2012. Younger investors drove SBI’s growth, with investors under 50 comprising more than 60% of the company’s customer base. By the end of June 2017, SBI crossed the 4 million mark to have the second-most accounts among all brokerages in Japan behind Nomura Holdings Inc. (Baa1 stable) subsidiary Nomura Securities. Co., Ltd. (A3 stable).
Daiwa’s investment in fintech follows similar moves by other brick-and-mortar brokerages. Earlier in 2017, Mizuho Securities Co., Ltd. (A1 stable) invested in a fintech company, One Tap BUY. The startup launched its app in 2016 and has raised approximately ¥3 billion from companies including Mizuho Securities. Many One Tap BUY customers are in their 20s and 30s, and about 70% of its app users had never invested before.
NEWS & ANALYSIS Credit implications of current events
21 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Sovereigns
“Paradise Papers” renew focus on low-tax jurisdictions, a key risk for the Isle of Man Last Sunday, the International Consortium of Investigative Journalists released the so-called Paradise Papers, some 13.4 million leaked documents that detail companies and individuals allegedly involved in offshore investments. The leak is likely to fuel renewed government attention on offshore financial centres, a credit negative for low-tax jurisdictions such as the Isle of Man (Aa2 stable), which, along with the Cayman Islands (Aa3 stable), Bermuda (A2 stable) and the British Virgin Islands, is most prominently mentioned in the papers. In the Isle of Man’s case, the allegations centre around the value-added tax treatment of aircraft leasing arrangements, under which the island issued full refunds to 231 jet-leasing companies between 2011 and 2016.
Setting up companies offshore is generally legal and can serve a variety of legitimate financial and business reasons. Nevertheless, the Paradise Papers are likely to prompt further international pressure from the G20, the European Union (EU, Aaa stable) and the Organisation for Economic Co-operation and Development on small financial jurisdictions to revise their tax systems and eliminate opportunities for regulatory and fiscal arbitrage. We see this as a continuing structural shift in the international political and economic climate for offshore centres.
The Isle of Man’s offshore banking activities and “zero-10” tax system, under which the corporate tax rate is zero with the exception of banks and large retailers (10%), and its low personal income tax (its top tax rate is 20%), are some of the main pillars of the island’s economic model. But the Isle of Man’s economic model – like other low-tax jurisdictions – has made it vulnerable to other countries’ allegations that it facilitates tax avoidance and money laundering.
The government thus far has managed to mitigate this risk by proactively signing up for international initiatives designed to reduce tax avoidance and increase transparency. Moreover, the authorities’ economic development strategy, focused on diversifying away from traditional banking, has encouraged companies to establish significant operations on the island, rather than solely using the Isle of Man to minimise tax. Therefore, the Isle of Man is less exposed than many other jurisdictions.
Nevertheless, there are limits to the ability of a small jurisdiction such as the Isle of Man to mitigate the threats from evolving international tax regulation. In the EU, we expect pressure from various directions, including individual member states and the European Parliament. In particular, the EU is currently creating a common list of non-cooperative tax jurisdictions on which economic sanctions could be imposed. The blacklist is scheduled to be published by the end of this year, and the publication of the Paradise Papers has already prompted additional calls from individual EU member states to move forward on the issue.
The challenges to the island’s longer-term growth model are also magnified by the UK’s planned departure from the EU, which will remove a supporting voice at the EU table. As a Crown Dependency, the Isle of Man is not sovereign, is not a member of the EU in its own right, and has historically relied on the UK to represent its interests on the international stage.
Mickaël Gondrand Associate Analyst +44.20.7772.1085 [email protected]
Kathrin Muehlbronner Senior Vice President +44.20.7772.1383 [email protected]
NEWS & ANALYSIS Credit implications of current events
22 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
Lebanese prime minister’s resignation risks renewing a political vacuum, a credit negative Last Saturday, Lebanon’s (B3 stable) Prime Minister Saad Hariri, a longtime Sunni ally of Saudi Arabia (A1 stable), announced his resignation. Making the announcement from Riyadh, Saudi Arabia, Mr. Hariri cited assassination threats and expanding Iranian influence in Lebanon. Mr. Hariri’s resignation threatens Lebanon’s fragile political balance. After a two-and-a-half year political vacuum, political stability was only restored after Mr. Hariri endorsed Michel Aoun, a Maronite Christian and a Shia Hezbollah ally, for president in October 2016.
A drawn-out political stalemate less than a month after the government passed its first budget in 12 years would undermine recent institutional improvements and risks delaying Lebanon’s scheduled parliamentary elections in May 2018, the first since 2009.
Mr. Hariri’s resignation comes amid an intensifying power struggle between Saudi Arabia and Iran conducted via proxy wars in the region, including in neighboring Syria, where the military arm of Hezbollah has been able to expand its sphere of influence. Saudi Arabia has called for the Lebanese government to cut ties with Hezbollah and has withheld $3 billion in military aid. Hezbollah’s military advances along the border region with Israel (A1 stable) also have escalated tension with Lebanon’s southern neighbor and increased the risk of a renewed confrontation. The longstanding conflict with Israel is the raison d’être of Hezbollah, which was established in 1982 and which Iran supports.
The Lebanese government also is under pressure from the US (Aaa stable) to isolate Hezbollah, which the US classifies as a terrorist organization. Still, the US has supported the Lebanese army with $1.5 billion in military aid since 2005 and the US Congress overwhelmingly passed three bipartisan bills in October, the most relevant of which, the Hezbollah International Financing Prevention Amendments Act of 2017, seeks to cut Hezbollah’s funding from foreign states such as Iran. The bill also authorizes new sanctions against the group and its financial networks.
Although the head of Lebanon’s banking association confirmed to the president that the sanctions neither target nor affect Lebanon’s banking system, domestic banks will face higher monitoring and reporting standards, which will weigh on their operating environment. Any loss of confidence in the banking system or in the stability of Lebanon’s institutions that leads to a protracted slowdown in private sector deposit inflows or outright outflows would be credit negative for the government given its dependence on domestic banks for funding. Our elevated political event risk assessment indicates a higher probability of a downgrade in case of a prolonged political stalemate.
Elisa Parisi-Capone Vice President - Senior Analyst +1.212.553.4133 [email protected]
Chris Cho Associate Analyst +44.20.777.25453 [email protected]
NEWS & ANALYSIS Credit implications of current events
23 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
US Public Finance
Maine Medicaid expansion increases state’s budget risks On Tuesday, Maine (Aa2 stable) voted to expand Medicaid eligibility to persons who are not elderly but who have incomes below 138% of the federal poverty rate. The credit-negative expansion will increase Maine’s enrollee population to 24% of its total population and federal Medicaid funding to 47% of annual state own-source revenue. Maine is now in the top tier of states most susceptible to a federal reduction of Medicaid funding, as measured by enrollee population and federal Medicaid funding (see exhibit).
Medicaid eligibility expansion increases Maine’s risk in a scenario of reduced federal Medicaid funding
Sources: The Henry J. Kaiser Family Foundation and Moody’s Investors Service
Expansion will increase Maine’s annual costs for its Medicaid program, MaineCare, by at least $55 million when fully implemented in 2021. This may increase budget pressure for the state. The projected increase in state expenditure comes at a time of relatively subdued growth in state revenue. Maine’s revenue increased 2.6% in fiscal 2017, which ended 30 June 2017, compared with the same period last year. Increased Medicaid expenditures without accompanying revenue growth will force the state to cut spending in other areas, raise revenue or look for other budget-balancing measures.
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Julius Vizner Assistant Vice President - Analyst +1.212.553.0334 [email protected]
Tom Aaron Vice President - Senior Analyst +1.312.706.9967 [email protected]
NEWS & ANALYSIS Credit implications of current events
24 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
The larger risk to the state is that the federal government could reduce Medicaid funding. If funding for the federal expansion program is cut or eliminated, Maine would face budget pressure if it decides to maintain similar levels of coverage. At $959 million in state funding in fiscal 2016, or 21% of own-source revenue, Medicaid was Maine’s second-largest expenditure item behind education. The expansion will increase federal funding of MaineCare to $2.1 billion, an increase of $525 million or 32% over fiscal 2016. The bulk of the expansion-related increase in federal funding is due to the 90% in federal matching funds to pay for medical costs for the newly eligible childless adult population. The incremental federal revenue amounts to 11% of Maine’s own-source revenue, which does not include federal revenue.
Maine expects that expansion will increase enrollees by 70,000 to 318,000, rising to 24% of the state’s population. The high utilization rate will make changes to the program politically challenging if the federal government decides to reduce Medicaid funding. However, Maine in the past has managed Medicaid enrollment to address budget risk.
Maine previously expanded Medicaid in 2002 before the current administration curtailed eligibility in 2011. Maine’s liquidity and available fund balance were stressed during those intervening years, in part because of added Medicaid costs. The state finally repaid overdue MaineCare payments to hospitals in 2013 with the proceeds from a bond that securitized other state revenue and increased state debt.
Voters also approved amending Maine’s constitution to allow the state more time to pay off any future unfunded pension liabilities, should they develop. The state was previously required to amortize new unfunded liabilities over 10 years, but Tuesday’s vote increased that period to 20 years. If new unfunded liabilities develop, this negative change will push the state’s pension costs further into the future and result in higher unfunded pension liabilities compared to the status quo.
RECENTLY IN CREDIT OUTLOOK Select any article below to go to last Monday’s issue of Credit Outlook
25 MOODY’S CREDIT OUTLOOK 9 NOVEMBER 2017
NEWS & ANALYSIS Corporates 2 » Suedzucker’s acquisition of US food manufacturer Richelieu
is credit positive » Norilsk Nickel launches its Bystrinsky plant, a credit positive » CK Asset Holdings’ sale would enhance its capital structure
Infrastructure 5 » For Dominion Energy, Connecticut’s zero-carbon law is
credit positive » For Hokuriku Electric, a tariff hike would improve profit and
cash flow
Banks 7 » BNP Paribas Personal Finance’s acquisition of Opel-Vauxhall
lending captives is credit positive » Intrum’s sale of unit to Lowell Group is credit positive for
seller, but impedes buyer’s deleveraging efforts » Three Japanese megabanks’ plans to substantially reduce
headcount are credit positive
Sub-sovereigns 10 » Russia’s new budget loan programme will benefit
debt-laden regions
US Public Finance 11 » Oklahoma’s continued budget impasse is credit negative
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