inside central & eastern europe
TRANSCRIPT
MOODYS.COM
SEPTEMBER 2017
IN THIS ISSUE Sovereign and Supranational Research 9 Czech Republic's lower debt level and more stable politics support stronger credit profile than Poland
9
Croatia's more developed economy and institutions justify stronger credit profile
10
Government of Romania: European Commission warns on significant budget objective deviation, set to breach deficit threshold, a credit negative
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Corporate Finance Research 13 Latvenergo AS: Green Bond Assessment 13 IFRS 16 should provide a better picture of the future cash outflows for leases
15
Energy transition presents long-term risks for European regulated energy networks
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CEE telecoms providers' credit improvement to continue to outpace their western European peers
19
Credit Opinion: Globalworth Real Estate Investments Limited
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Amended law on renewables is credit negative for Polish renewable producers, positive for state-owned utilities
23
Financial Institutions Research 25 Poland’s proposed relief fund for FX mortgages would hurt banks’ profits
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Banking System Outlook - Czech Republic: Economic and employment growth will support loan demand
27
Peer comparison – Banca Comerciala Romana, BRD - Groupe Societe Generale, Raiffeisen Bank SA
29
Sub-Sovereign Research 31 Czech municipalities will get larger share of value-added tax, a credit positive
31
Structured Finance Research 33 GNB Auto Plan 2017 SP. Z O.O. 33
Moody's CEE Coverage List 35
Moody’s CEE Contact List 39
Moody’s Focus on Central and Eastern Europe This compendium brings together Moody’s recent research on Central and Eastern European sovereign, banking, insurance and corporate finance credit, reflecting the region’s favourable growth prospects, rising international issuance and increasing investor demand for credit ratings and research over the past few years.
FEATURE ARTICLES
Heard from the market: Emerging market credit profiles stabilise, but recovery prospects vary While emerging market credit profiles will benefit from more stable macroeconomic conditions over the next year, they face risks from China's slowdown and elevated corporate debt levels, according to the results of the survey in our inaugural Emerging Markets Summit in London on 16 May. We forecast real GDP growth of 5.0% and 5.1% for G-20 emerging markets in 2017 and 2018, which would mark an acceleration from the 4.4% recorded in 2016. All major EM economies will post positive economic expansion on average this year and next, with a majority likely to exhibit a better growth performance than in recent years.
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Robotics' impact on emerging market high-tech exporters depends on their technology absorption capacity The accelerating adoption of robotics in manufacturing in some of the worlds' more advanced economies could pose challenges to emerging market exporters that have benefited from their comparative advantage of lower cost, high skilled labor. While the adoption of robotics is currently concentrated in only a few countries, it will have implications beyond their borders. In particular, the countries that are linked to them through trade and manufacturing supply chains will be impacted. These include emerging markets economies, such as Czech Republic (A1 stable), Hungary (Baa3 stable), and Slovenia (Baa3 positive) in Central and Eastern Europe, as well as Malaysia (A3 stable) and Thailand (Baa1 stable) in Asia
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Czech central bank raises its benchmark rate, a credit positive for banks On 3 August, the Czech National Bank raised its benchmark two-week repo rate by 20 basis points to 0.25% amid rising inflation, marking the central bank’s first increase in nine years. The increase is credit positive for Czech banks because it allows them to begin to reverse a sharp contraction in net interest margins as a result of ultra-low interest rates. The move also will ease bank competition over lending rates, which is fuelling high credit growth, particularly in housing loans.
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INTRODUCTION
2 MOODY’S INSIDE CEE 12 September 2017
Piotr Janczak General Manager, Poland Head of Relationship Management, CEE +48.22.449.01.59 [email protected]
Igor Ovcacik Country Manager, Czech Republic Relationship Manager, CEE +420.224.106.444 [email protected]
David Aldrich Associate Managing Director, Emerging Markets EMEA Fundamental Relationship Management, Commercial Group +44.20.7772.1743 [email protected]
Dear customers and friends, We are pleased to introduce our second CEE Newsletter for 2017, summarising Moody’s regional activity over the last six months. The year remains a busy one for us, reflecting the increased appetite for credit ratings and issuances in the region. We have rated the majority of the corporate Eurobonds issued in CEE, including the debut bond by Globalworth Real Estate Investments Limited out of Romania, placements by Energa and Play out of Poland, as well as the €1.35 billion Senior Secured Notes by United Group B.V. We have also published rare credit ratings in CEE, including bank loans --- regarding Pfleiderer Group S.A. and repricing of Avast Holding B.V. facilities. Additionally, we have expanded our coverage of CEE corporates, having assigned a rating to MOL Hungarian Oil and Gas Plc, the leading corporate in the region. The banking sector kept us particularly busy, with new ratings published for First Investment Bank (Bulgaria), Alpha Bank Romania and JSC Development Finance Institution Altum (Latvia) --- the latter two are both solely rated by Moody’s. We have demonstrated our leadership in rating covered bonds with sole ratings, for the further issuances by the mortgage bank subsidiary of the largest Polish bank --- PKO Bank Polski S.A. In total we already publicly rate six covered bond programs across the CEE and are working to expand this coverage. In terms of PKO, we have also rated their new €3 billion EMTN program, including its first tranche of €750 million, which has already been placed. Furthermore, to help investors follow the rapidly changing legal framework in various CEE banking markets more closely, we have published almost 30 research notes on these topics. Following our launch of a Green Bond Assessment (GBA) service, Moody’s published the Issuer-In-Depth report on the first GBA assigned in CEE to the Latvenergo program for the issuance of notes in June. We have also expanded our leading position in the region by growing our CEE commercial team with further personnel appointments. In 2017 Moody's won the GlobalCapital award for Best Rating Agency for Investment Grade Corporate Bonds, for High Yield Bonds and for FIG Bonds. We continue to present our views to market participants across the region. In the first half of 2017, we organized the Annual Czech & CEE Summit in Prague, the Romanian Regional and Local Government Roundtable and a seminar on Contingent Convertibles / Additional Tier 1 Financial Instruments in Poland. We also held the Emerging Markets Summit in London, with CEE being one of the core topics. We look forward to welcoming you to Moody’s Annual Poland & CEE Summit in Warsaw on 5 October 2017. Moody’s latest rating actions and research focused on the CEE region are available at ww.moodys.com and www.moodyscentraleurope.com, with the latter available in both Czech and Polish languages. Our CEE team looks forward to engaging with you,
Piotr, Igor and David
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.
FEATURE ARTICLES
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Heard from the market: Emerging market credit profiles stabilise, but recovery prospects vary For the full report originally published on 1 June 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Moody’s held its inaugural Emerging Markets Summit in London on 16 May. The conference brought together some of the largest emerging market (EM) investors, intermediaries and debt issuers, as well as Moody’s analysts, to debate the outlook for EM credit. Key observations from the summit, including the results of audience polling, are detailed below.
» A stabilising macroeconomic environment will support EM credit profiles over the coming 12 months. Almost all EM economies are set for positive economic growth in 2017 and 2018. Steadying growth, coupled with an adjustment in external deficits in many economies and further consolidation in commodity prices, should support EM capital inflows and credit conditions. Still, there remains significant differentiation in the ability of emerging markets to embark on sustainable recoveries, as reflected in the still high share of EM sovereigns that carry a negative ratings outlook.
» China’s slowdown and elevated corporate debt represent the largest challenges to EM credit, according to our polling results. The market participants we surveyed believe that a sharper slowdown in China (which we downgraded by one notch to A1 with a stable outlook on May 24) and renewed commodity price pressure (representing 39% of polling), followed by elevated corporate and household debt in developing economies (27%), represent the largest downside risks to EM credit. Conversely, only 16% of those polled see rising US protectionism as the single greatest challenge. From our perspective, a number of global macro challenges – such as risks to EU fragmentation or the pursuit of protectionist policies in the US (Aaa stable) – have diminished recently. However, the potential for an abrupt increase in financial market volatility continues to pose downside risks to EM credit.
» Market participants are concerned that reform efforts in China will fail to enhance growth and reverse the rise in debt levels. The majority of those polled believe that reform efforts in China will not prevent a decline in growth or rise in debt (54%), with 38% expecting a stabilisation of growth and debt at current levels. Furthermore, our audience saw rising corporate distress (36%) and financial stability risks (26%) as the greatest challenges to China’s credit profile. The recent downgrade of China’s sovereign rating reflects our expectation of a continued erosion of the country’s financial strength – most notably rising economy-wide debt and a slowing economic growth trend – despite ongoing reforms.
Rahul Ghosh Vice President – Senior Credit Officer +44.20.7772.1059 [email protected]
Colin Ellis Managing Director - Credit Strategy +44.20.7772.1609 [email protected]
Marie Diron Associate Managing Director +65.6398.8310 [email protected]
Philipp L. Lotter Managing Director - EMEA Corporate Finance +44.20.7772.5427 [email protected]
Madhavi Bokil Vice President - Senior Analyst +1.212.553.0062 [email protected]
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» South Africa and Turkey will experience the greatest deterioration in credit conditions, according to market participants. Persistent political risk remains a credit constraint in both countries. We placed South Africa (Baa2 RUR downgrade) on review for downgrade in April, citing the abrupt change in leadership across a number of government institutions – including in key portfolios such as finance and energy – which raises questions over future reform momentum and investor confidence. In Turkey (Ba1 negative), a combination of a polarised electorate, turbulent geopolitical backdrop, ongoing policy uncertainty and large external financing requirements suggests that the country’s vulnerability to shocks will continue to weigh on the country’s creditworthiness.
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Robotics’ impact on emerging market high-tech exporters depends on their technology absorption capacity For the full report originally published on 17 May 2017, please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
» Five countries account for about 75% of global robotics technology purchases. These are China (Aa3 negative), Germany (Aaa stable), Japan (A1 stable), Korea (Aa2 stable), and US (Aaa stable) and the adoption of robotics in manufacturing is concentrated in the highly globalized electronics and automotive sectors.
» Robotics will likely displace labor in some processes, but this could also offset demographic pressures on growth. In the above five countries, robotics could facilitate the onshoring of some processes that were formerly offshored to lower labor cost destinations. Nonetheless, the number of manufacturing jobs lost to automation is likely to be higher than those gained by onshoring. This could have negative social and distributional implications. On the other hand, in countries with aging populations, robotics could support growth by compensating for lower labor supply growth while also increasing productivity.
» Emerging markets' (EMs) comparative advantage of lower-cost, skilled labor faces challenges. Automation could erode some of the labor cost advantages that led to increased global trade and investment integration for EMs such as Czech Republic (A1 stable), Hungary (Baa3 stable), and Slovenia (Baa3 positive), in Central and Eastern Europe, as well as Malaysia (A3 stable), and Thailand (Baa1 stable)
Samar Maziad Vice President - Senior Analyst +1.212.553.4534 [email protected]
Youngjoo Kang Associate Analyst +1.212.553.1124 [email protected]
Atsi Sheth Managing Director - Sovereign Risk +65.6398.3727 [email protected]
Alastair Wilson Managing Director - Sovereign Risk +44.20.7772.1372 [email protected]
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in Asia. Mexico (A3 negative) in Latin America is less exposed as it will continue to enjoy a significant labor cost advantage, given the relative pace and cost of robotics adoption in the US.
» Technology absorption capacity will increasingly determine emerging markets' relative competitiveness in high technology manufacturing. Technology adaption indicators for the Czech Republic, Hungary, and Malaysia reveal them to be relatively better positioned among their peers to maintain the investment, exports and global production links that have supported their growth in the past.
Implication of Rising Use of Robotics Technology in the 'Nodes' of Global Trade
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Arif Bekiroglu Assistant Vice President - Analyst +44.20.7772.1713 [email protected]
Aleksander Blacha Associate Analyst +44.20.7772.5282 [email protected]
Czech central bank raises its benchmark rate, a credit positive for banks For the full report originally published on 7 August 2017, please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
On 3 August, the Czech National Bank (CNB) raised its benchmark two-week repo rate by 20 basis points to 0.25% amid rising inflation, marking the central bank’s first increase in nine years. The increase is credit positive for Czech banks because it allows them to begin to reverse a sharp contraction in net interest margins as a result of ultra-low interest rates. The move also will ease bank competition over lending rates, which is fuelling high credit growth, particularly in housing loans.
EXHIBIT 1
Czech banks’ net interest margins have been declining
Notes: Return on assets for 2016 excludes gains from the sale of Visa Europe Limited, in which most Czech banks had a stake, to Visa Inc. * Loans to non-financial corporations excluding overdraft, credit card and revolving loans. Source: Czech National Bank and Moody’s Investors Service
The increase in the benchmark interest rate will help improve banks’ profitability as the Prague Interbank Offered Rate-indexed and maturing assets gradually reprice, leading to higher interest revenue. For the Czech banks that we rate, the average net interest margin was 2.49% at year-end 2016, down from 2.79% in 2014, and their average return on assets was 1.45%, down from 1.61% for the same period (see Exhibit 1).
We do not expect a material increase in banks’ funding costs because of the high liquidity they have, as shown by a systemwide loan-to-deposit ratio of 74% as of June 2017, primarily driven by the top three Czech banks: Ceská Sporitelna, a.s. (A2 stable, baa11), Ceskoslovenska Obchodni Banka, a.s. (A2 stable, baa1) and Komercni Banka, a.s. (A2 stable, baa1). However, the margin improvement may be lower for midsize banks such as UniCredit Bank Czech Republic and Slovakia a.s. (mortgage covered bonds Aa3), Raiffeisenbank a.s. (mortgage covered bonds A1) and MONETA Money Bank a.s. (Baa2 stable, baa2). These banks had a loan-to-deposit ratio of 103% as of year-end 2016, or have relied more on corporate deposits. These banks might be more sensitive to depositors’ behaviour and might have to resort to increasing their deposit costs as rates increase further. Nonetheless, UniCredit and Raiffeisenbank use medium-term covered bonds, equalling around 9% of their liabilities, while Moneta is primarily funded by retail deposits, which should moderate the adverse effect on their funding costs.
1 The bank ratings shown in this report are the bank’s deposit rating and baseline credit assessment.
0%
3%
6%
9%
12%
15%
0%
1%
2%
3%
4%
5%
2010 2011 2012 2013 2014 2015 2016 2017
Net Interest Margin - left axis Return on Assets - left axisInterest Rate on New Housing Loans - left axis Interest Rate on New Loans to Non-financial corporations* - left axisInterest Expense as Percent of Liabilities - left axis Interest Rate on New Consumer Credit - right axis
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Because of historically low lending rates, Czech banks’ overall loan portfolio has grown an average of 6% a year since June 2012, driven mainly by average annual mortgage growth of 7% (see Exhibit 2). Mortgages comprise 36% of banks’ loan book, and these loans’ nonperforming loan ratio was 1.75% as of June 2017.
EXHIBIT 2
Czech banks’ assets and the benchmark rate
Source: Czech National Bank
In recent years, lending growth has been accompanied by somewhat relaxed underwriting practices and increasing indebtedness among households, whose repayment capacity remains untested. Given that lending rates remain low, a modest increase in the benchmark interest rate will have little effect on households’ debt-servicing capacity. However, the rate increase underlines the importance of banks adhering to the CNB’s recommendations on mortgages, including stress testing borrowers’ repayment capacity under higher interest rates, and should curb the growth in housing loans and house price appreciation.
The Czech koruna has appreciated a modest 3.6% against the euro since April, when the CNB ended its exchange-rate floor against that currency. We expect the koruna to strengthen further following the interest rate hike and the additional hikes that the market expects in the coming quarters. However, the magnitude will depend on foreign investors managing their positions in koruna assets, primarily Czech government securities. The effect of the koruna’s appreciation on domestic banks will be uneven but manageable because of their low foreign-currency exposure and domestic focus.
Likewise, the effect of the volatility in the yields of government securities will have only a modest effect on Czech banks. Banks have kept their liquidity primarily in deposits at the central bank (32% of total assets as of June 2017), for which the discount rate is unchanged at 0.05% and therefore will not contribute to an increase in interest income. Also, banks’ remaining liquid assets are held as government securities that are mainly booked as held-to-maturity, shielding them from changes in mark-to-market valuations.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0
1
2
3
4
5
6
7
8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017
CZK
Trill
ions
Mortgage Loans - left axis Consumer Loans - left axis Corporate Loans - left axisOther Loans - left axis Central Banks Deposits - left axis Other Liquid Assets - left axisOther Assets - left axis Two-Week Repo rate - right axis
SOVEREIGN AND SUPRANATIONAL RESEARCH
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Czech Republic's credit profile is stronger than Poland’s, supported by a lower debt level and more stable politics For the full report originally published on 25 July 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
The two largest central European EU members, Poland (A2 stable) and the Czech Republic (A1 stable), share similar credit drivers. However, the Czech Republic’s lower and more affordable debt burden as well as more stable politics underpin the country's stronger credit profile relative to Poland. That said, Poland has a larger economy and a higher growth potential.
» EU integration has supported income convergence with the EU-28. The integration into European production chains boosted investment and created jobs for skilled workers. Comparing the two countries, the Czech Republic's higher degree of openness leads to more volatile growth.
» Both economies show a cyclical upswing, with Poland having the greater medium-term growth potential. Poland will receive the largest share of structural and cohesion funding among EU countries for the 2014-2020 programming period. The country has also more favourable demographics, despite lower net migration compared to the Czech Republic.
» The Czech Republic's institutions are stronger. Poland's lower Worldwide Governance Indicators, its more pronounced state intervention and its disputes with the EU weigh on the assessment of its level of institutional strength.
» Fiscal policy is more prudent and debt lower in the Czech Republic. Poland breached the 3% Maastrict deficit target in almost every year between 1999 and 2014, and its deficit remains higher than Czech Republic's and the CEE-8 median.CEE-8 includes Bulgaria, Czech Republic, Croatia, Hungary, Poland, Romania, Slovakia and Slovenia. Recent government policies present risks of further slippage.
The Czech debt burden is lower and is falling General government debt-to-GDP ratio (%)
Source: Moody's Investors Service
The Czech Republic's debt is also more affordable %, 2016
Source: Moody's Investors Service
» Stronger fiscal metrics underpin Czech Republic's greater ability to absorb shocks. Risks arising from contingent liabilities and from the domestic banking systems are greater in Poland, and its high debt load limits its capacity to absorb their crystallization. Moreover, Poland's political environment is more fluid and uncertain.
Heiko Peters Assistant Vice President - Analyst +49.69.70730.799 [email protected]
Michail Michailopoulos Associate Analyst +49.69.7073.740 [email protected]
Dietmar Hornung Associate Managing Director +49.69.70730.790 [email protected]
Yves Lemay Managing Director - EMEA Sovereign +44.20.7772.5512 [email protected]
Alastair Wilson Managing Director - Sovereign Risk +44.20.7772.1372 [email protected]
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Evan Wohlmann Vice President - Senior Analyst +44.20.7772.5567 [email protected]
Mickaël Gondrand Associate Analyst +44.20.7772.21085 [email protected]
Simon Griffin Vice President - Senior Analyst +49.69.70730.764 [email protected]
Dietmar Hornung Associate Managing Director +49.69.70730.790 [email protected]
Yves Lemay Managing Director - Sovereign Risk +44.20.7772.5512 [email protected]
Alastair Wilson Managing Director - Global Sovereign Risk +44.20.7772.1372 [email protected]
Governments of Croatia and Serbia: Croatia's more developed economy and institutions justify stronger credit profile For the full report originally published on 4 July 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Croatia (Ba2 stable) and Serbia (Ba3 stable) have both seen improvements in their fiscal positions in recent years, but their public sector debt burdens remain significant, while structural deficiencies impact their growth potential. Croatia's larger, more competitive economy and its stronger institutions justify a one-notch rating differential between the two sovereigns. However, structural reforms in Serbia and its strong shift towards the export sector will bolster its economic performance in the coming years..
» Croatia’s economy is more established, but greater reform momentum in Serbia will support income convergence. Croatia’s economy is approximately a third larger than Serbia’s, is more competitive and wealthy, and has tariff-free access to the European single market. Nevertheless, Serbia’s broadening growth drivers, including a strong reorientation towards the export sector, and the structural reforms implemented to date will bolster the country’s performance over the rest of the decade. In contrast, progress towards comprehensive reform has been more modest in Croatia, and remains hampered by greater constraints. Continued integration with the EU and sustained efforts to improve the investment climate are crucial to an acceleration in longer-term growth rates in both countries.
EXHIBIT
Croatia's economy is larger and wealthier... Selected indicators of economic performance
Note: Nominal GDP in 2016 (US$) is represented by the size of bubble Sources: Haver Analytics, Moody’s Investors Service
EXHIBIT
… and is more competitive Global Competitiveness Index (ranking, lower = more competitive)
Sources: World Economic Forum, Moody’s Investors Service
» Stronger institutions, stemming from EU accession, underpin Croatia’s higher creditworthiness. Serbia’s institutions are less developed, as reflected both in the World Bank’s Worldwide Governance Indicators and in the larger size of its informal economy. Though popular support for EU accession in Serbia will help to drive institutional improvements over the coming years, weaknesses remain, particularly in areas such as transparency and the rule of law.
» Both sovereigns carry large debt burdens, but fiscal consolidation will lead to gradual improvements. Serbia’s debt is more affordable, but both credits are highly exposed to foreign exchange risks given a large degree of ‘euroisation’ across the economy. Serbia also has a larger and relatively indebted state-owned enterprise sector, although efforts are underway to limit spillovers to the government budget.
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Simon Griffin Vice President - Senior Analyst +49.69.70730.764 [email protected]
Polina Gotmann Associate Analyst + 49.69.70730.725 [email protected]
Dietmar Hornung Associate Managing Director +49.69.70730.790 [email protected]
Yves Lemay Associate Managing Director +44.20.7772.5512 [email protected]
Alastair Wilson Managing Director - Global Sovereign Risk +44.20.7772.1372 [email protected]
Government of Romania: European Commission warns on significant budget objective deviation, set to breach deficit threshold, a credit negative For the full report originally published on 29 May 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
In late May, the European Commission (EC) warned Romania (Baa3 stable) that it might deviate significantly from its medium-term budgetary objective (MTO) and urged the Romanian authorities to introduce measures necessary in order to avoid the opening of an Excessive Deficit Procedure (EDP), which Romania last exited in 2013.1 With additional Romanian tax cuts and public sector salary increases planned, the EC has stated that it expects Romania to run the largest deficit in the EU this year, at 3.5% of GDP, as well as in 2018, at 3.7%, thereby breaching the Maastricht Treaty reference value of 3.0% of GDP.
The EC proposes that the European Council recommends to the Romanian government that it should take appropriate steps in order to ensure that growth in net primary government expenditure does not exceed 3.3% in 2017.2 The EC stated that “it is an early warning and gives the authorities the opportunity to take corrective action in order to avoid the opening of an Excessive Deficit Procedure.”
Responding to the EC warning, the Romanian Finance Minister, Viorel Ștefan, stated on Friday that Romania may surpass its official growth forecast of 5.2% this year and that it intends to press ahead with tax cuts in 2018. He claimed that budget costs would be mitigated by increased tax receipts and that Romania would meet its budget deficit target of 3.0% of GDP in 2017.
This is not the first time that the EC has expressed concern over the burgeoning Romanian fiscal deficit recently. On 22 February, Valdis Dombrovskis, EC Vice President, and Pierre Moscovici, European Commissioner for Economic and Financial Affairs, wrote to the Romanian Finance Minister, Viorel Ștefan, warning that the Romanian budget deficit might exceed 3% in 2017, and seeking credible assurances that the budget deficit target would not be exceeded.3 The letter stated that Romania was estimated to have deviated significantly from its MTO in 2016. In response, the Romanian Finance Ministry asserted that Romania will meet its deficit target, below the Maastricht threshold of 3% of GDP, in 2017.
In the immediate post-crisis period, Romania was proactive in confronting the challenges posed by substantial fiscal deficits. The Romanian authorities undertook significant fiscal consolidation between 2009 and 2015, in spite of lower growth and a period of political volatility. The IMF (which successfully completed several Stand-By Agreements with Romania) and the EU (through the EDP, which Romania exited in 2013) helped to enhance the institutional capacity of Romania in order to achieve this fiscal performance.
However, the fiscal consolidation achieved between 2009 and 2014 has been reversed by a series of deficit-widening measures introduced since late 2014. The Romanian government reduced social security contributions by five percentage points from October 2014, before it implemented additional fiscal-easing measures in the course of 2015. These included wage increases and tax cuts.
For instance, in June 2015, the government reduced the VAT rate on food to 9% from 24%. It raised public sector wage levels in 2015, with increases to the minimum wage as well as 25% and 15% rises in healthcare and educational salaries. In addition to these salary increases, a general wage hike of 10% was applied to those parts of the public sector that had not already received pay rises. In January 2016, the standard rate of
1 https://ec.europa.eu/info/sites/info/files/c-2017-3518_ro_0.pdf 2 https://ec.europa.eu/info/sites/info/files/com-2017-268_ro_2.pdf 3 https://ec.europa.eu/info/sites/info/files/letter_to_romanian_mof.pdf
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VAT was reduced to 20% from 24% and the dividend tax rate was reduced to 5% from 19%. Expenditureincreasing measures in 2016 included a further rise in public sector wages and a doubling of child allowances. In January 2017, the standard VAT rate was reduced again, from 20% to 19%.
The Romanian parliament has recently debated a unified public sector wage law that would increase pay in the education sector by 50% and more than double the salaries of healthcare workers. The government also plans to overhaul taxation from 2018, replacing a flat income tax of 16% with lower differentiated levies upon household income, introducing a slew of deductions. Without significant changes to current and proposed policies, it will be challenging for the Romanian government to avoid a significant deviation from its MTO as well as further substantial increases in the scale of its fiscal deficit.
The widening of the deficit in 2016 had a limited impact upon debt trajectory. That is likely to change in 2017, as we expect the general government debt-to-GDP ratio to resume its upward trajectory, rising close to 45% by 2020. The current debt burden is sensitive to economic shocks: in 2009, debt jumped to 23.2% of GDP from 13.2% in 2008, reflecting the widening of the fiscal deficit to 9.5% of GDP in 2009 from 5.5% in 2008, as well as contingent liabilities stemming from the public sector and from a 2.6% contraction in nominal GDP.
CORPORATE FINANCE RESEARCH
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Henry Shilling Senior Vice President - Env Social & Governance +1.212.553.1948 [email protected]
Christian Hermann Associate Analyst +1.212.553.2912 [email protected]
Thomas Brigandi Associate Analyst +1.212.553.2985 [email protected]
Matthew Kuchtyak Associate Analyst +1.212.553.6930 [email protected]
Jim Hempstead Managing Direcotr - Utilities +1.212.553.4318 [email protected]
Swami Venkataraman, CFA Senior Vice President +1.212.553.7950 [email protected]
Latvenergo AS Green Bond Assessment Originally published on 26 June 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Summary Analysis
Summary Opinion A GB1 (Excellent) grade is assigned to the green notes issued by Latvenergo AS (Baa2 stable), the largest power supply utility in the Baltics. The grade is supported by a well-defined organization and decision-making process focused on financing qualifying energy efficiency and environmental preservation projects, transparent management of proceeds, and effective reporting and disclosure practices, which reflect commitments to broaden impact disclosures in future reporting. Key considerations in our assessment include:
Latvenergo has implemented an internal system for approving eligible projects funded by green bonds, which aims ensure all projects adhere to best practices of corporate governance.
» Allocations target categories that include renewable energy, energy efficiency and environmental preservation, while proceeds will not go towards nuclear or fossil fuel projects.
» While individual projects were not cited at the time of the offering, the company published a thorough disclosures on use of proceeds, which detailed what percentage of funds has been allocated to particular projects.
» An amount equal to net proceeds will be credited to a special account, where the balance will be held on deposit until all funds are disbursed. An internal audit unit at Latvenergo has conducted oversight.
» Commitment to publish annual green bond reports as long as notes remain outstanding, and ultimately expand disclosures to include expected environmental outcomes and benefits.
The transaction's weighted score, using the green bond scorecard, is 1.0. This, in turn, corresponds to a GB1 grade.
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Trevor Pijper Vice President – Senior Credit Officer +44.20.7772.5480 [email protected]
Philip Robinson Vice President - Senior Credit Officer + 44.20.7772.5425 [email protected]
Marina Albo Managing Director + 44.20.7772.5365 [email protected]
Non-Financial Corporates – EMEA: IFRS 16 should provide a better picture of the future cash outflow for leases Originally published on 14 June 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
» IFRS 16, the new accounting standard for leases that is mandatory from 2019 onwards, should provide a better picture of the future cash outflow because it requires lessees to reassess the term of certain lease arrangements that they have entered into. Some entities will reveal a significantly higher future cash outflow, whereas others will scale back the commitment currently disclosed under the existing accounting standard.
EXHIBIT
Play revealed significantly higher undiscounted future lease payments under IFRS 16
Source: Company financial statements
» Establishing the term of a lease requires judgement when the lessee has an option to extend or terminate the arrangement. The existing accounting standard contains very limited guidance on how to determine the future minimum lease payments when these features are present. In contrast, IFRS 16, while still requiring lessees to exercise judgement, asks them to consider all relevant facts and circumstances that create an economic incentive to extend or terminate the lease arrangement. This should provide a better picture of the future cash outflow.
» Our existing methodology uses a cap and a floor, both expressed as a multiple of the lease expense, to address uncertainty about the lease term. The use of a floor reflects our view that the present value of the future cash outflow may significantly understate the economic liability for very short tenor leases that will invariably have to be renewed when the assets are needed in the ongoing business operations of the company. Additionally, we believe that the floor better captures the economic liability where companies use variable or contingent rent structures that lead to relatively small minimum lease liability amounts being reported. The cap reflects our belief that the present value overstates the economic liability of very long leases because these leases can in practice often be exited for less than the full payment.
16 MOODY’S INSIDE CEE 12 September 2017
EXHIBIT
Our adjustment to play's debt in 2015 was based on a floor amount that exceeded the present value of the future payments
Source: Company financial statements and Moody's Financial Metrics
EXHIBIT
Play's IFRS 16 lease liability is 94% higher than the PLN433 million we previously included in debt
Source: Company financial statements and Moody's Financial Metrics
EXHIBIT
Play's IFRS 16 lease liability is equivalent to approximately four times the related expenses and cash outflows
The multiples shown above represent the IFRS 16 lease liability at the end of 2015 (PLN841 million) divided by the total amount for each of the three columns. Source: Company financial statements
17 MOODY’S INSIDE CEE 12 September 2017
Stefanie Voelz Vice President - Senior Credit Officer +44.20.7772.5555 [email protected]
Philip Cope Analyst +44.20.7772-5229 [email protected]
Camille Zwisler Associate Analyst +44.20.7772.1275 [email protected]
Graham W Taylor Vice President - Senior Credit Officer +44.20-7772.5206 [email protected]
Paul Marty Senior Vice President +44.20.7772.1036 [email protected]
Neil Griffiths-Lambeth Associate Managing Director +44.20.7772.5543 [email protected]
Regulated Electric & Gas Networks – EMEA: Energy transition presents long-term risks for European regulated energy networks Originally published on 13 June 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
The European energy sector is undergoing significant change. The growing share of electricity from renewables has already had adverse effects on incumbent generators and energy networks are not immune. Renewables are driving significant investment in electricity networks, reinforcing their importance in the energy supply chain. However, evolving regulation, developing technology and changing business models may undermine credit quality over time.
» Energy transition poses different challenges for European electricity and gas networks. Renewables growth drives significant investment in electricity networks. While supporting future resilience, a credit positive, this investment brings execution risk and weighs on credit metrics. With few exceptions, gas networks are mature with modest investment needs but decarbonisation poses questions around their long-term use. Considerations of remaining useful asset life may influence regulatory remuneration cycles as well as investment decisions, and network operators with very long-dated debt are exposed to asset stranding risk.
EXHIBIT
EU-28 production from renewable energy sources (RES) versus 2020 targets
Source: European Commission’s Renewable Energy Progress Report (Feb 2017), Moody's Investors Service
EXHIBIT
Evolution of EU climate change policy
Source: European Commission, Moody's Investors Service
» Changes in generation and consumption may undermine large scale network model. Network operators are exposed to the risk that small scale generation and selfsupply allows consumers to move off grid. Demand growth due to the electrification of heating and transport, together with the growing
18 MOODY’S INSIDE CEE 12 September 2017
importance of the system operator role, are potential long-term positives but network operators could be challenged by the scale and pace of future changes.
» Regulatory response will be key determinant of sector evolution. The change in scope of activities in an environment of significant technological shift may necessitate changes in the way European networks are remunerated and customers' tariffs are set, if credit quality is to be maintained. A narrow national or regional view may be replaced with increased focus on long-term planning across borders.
» Affordability will remain in focus as cost pressures increase. With investment requirements remaining high, leading to growth in companies’ asset base beyond 2020, pressure on customer bills will rise. As renewable subsidies continue to weigh on bills, affordability concerns could lead to deferral of cost and investment recovery for networks, a credit negative.
EXHIBIT
Electricity and distribution networks face different risks from decarbonisation
Source: Moody's Investors Service
EXHIBIT
10-year investment requirements for European electricity transmission networks
Note: (1) In Germany PP&E rather than RAB is used. Source: Regulatory data; National TSOs' annual reports, guidance and network development plan; Moody’s Investors Service's estimates
19 MOODY’S INSIDE CEE 12 September 2017
Alejandro Núñez Vice President - Senior Analyst +44.20.7772.1389 [email protected]
Danilo Ruocco Associate Analyst +44.20.7772.1966 [email protected]
Ivan Palacios Associate Managing Director +34.91.768.8229 [email protected]
Telecommunications – Europe: CEE telecoms providers' credit improvement to continue to outpace their western European peers Originally published on 24 April 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
» CEE telecommunications service providers' revenue growth, margin expansion and credit protection will continue to be better than that of their Western European peers. Over the past three years, Central and Eastern European (CEE) telecom service providers have exhibited stronger revenue growth, margin expansion and credit protection improvement than that of their Western European (WE) counterparts, largely due to the CEE's more robust GDP growth. Although we expect the pace of these improvements to slow, these trends should continue for at least the next 18 months.
EXHIBIT
CEE Region’s GDP Growth Rate Has Exceeded That of Western Europe Since 2010 CEE-8 and EU-15 real GDP growth (%, 2007-2016)
[1] EU-15 bloc includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, U.K. [2] CEE-8 bloc includes Bulgaria, Czech Republic, Croatia, Hungary, Poland, Romania, Slovenia, Slovakia Source: Moody’s Investors Service, Haver
» CEE telecoms' operating and market trends are also supportive of continued growth and credit improvement. The CEE telecom sector is less mature than the WE telecoms sector with regard to service penetration, pricing and usage, which has also contributed to its comparatively higher revenue and earnings growth rates. CEE telecom markets have had more scope to expand their networks and increase the penetration of new services such as 4G mobile and Internet Protocol television (IPTV) services.
» CEE telecom and media companies to remain attractive targets. Growth dynamics in the CEE telecoms market has led to M&A, in which particularly foreign buyers have acquired or bid for regional operators, especially in Poland. UPC Polska LLC, the Polish subsidiary of UPC Holding BV (Ba3 stable) acquired Multimedia Polska (unrated) in October 2016, to cite just one example. We expect this trend to continue most likely in the form of in-market cable-to-mobile deals or foreign firms acquiring or merging with CEE operators.
» Declining foreign exchange risk should support future earnings stability. Foreign exchange volatility and its impact on CEE telecoms’ earnings have diminished in the past two years, compared with continued volatility in other emerging markets. Over the past year, a number of CEE telecom and media companies have refinanced euro and US dollar bonds with local currency denominated bank loans, which has also helped lower their foreign exchange risk.
20 MOODY’S INSIDE CEE 12 September 2017
EXHIBIT
Rated CEE telecom and media companies
Data is as of December 2016 for CETIN, CME and Play and as of September 2016 for Polsat, Telekom Slovenije, Bulgarian Telecom, Cable Communication Systems, Adria Midco and Magyar Telecom. Ratings and outlooks are as of 21 April 2017 Debt/ EBITDA represents Gross Debt / EBITDA, FCF / Debt represents Free Cash Flow / Gross Debt, RCF/ Debt represents Retained Cash Flow / Gross Debt All ratios are based on 'Adjusted financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations Source: Moody's Investors Service
EXHIBIT
CEE telecoms sector outpacing we telecoms in revenue growth and EBITDA margin expansion Revenue growth (reported) and EBITDA margin (Moody’s-adj) for rated CEE and WE telecoms (2013A – 2018F)
Source: Moody’s Investors Service, Company data
21 MOODY’S INSIDE CEE 12 September 2017
Emmanuel Savoye, CFA AVP-Analyst +44.20.7772.1431 [email protected]
Yulia Syerova Associate Analyst +44.20.7772.1075 [email protected]
Mario Santangelo Associate Managing Director +44.20.7772.8623 [email protected]
Credit Opinion: Globalworth Real Estate Investments Limited For the full report originally published on 2 June 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Globalworth Real Estate Investments Limited (Globalworth’s) Ba2 CFR and stable outlook reflects (i) the high quality of its Grade A office portfolio, (ii) its strong tenant base made up mostly of multinationals and financial institutions, (iii) a 6.5 year long weighted average lease maturity, (iv) moderate leverage in terms of gross debt to total assets, as well as a good liquidity and a high level of unencumbered assets pro-forma for the bond issuance, (v) experienced management team and strategic investor (Growthpoint Properties, rated Baa2).
Partly offsetting these strengths are (i) the concentration in Bucharest’s central business district area and in a small number of properties, (ii) positive track record but limited in time since the recent incorporation of the company in February 2013, (iii) execution risk from growing into new markets.
We expect continued good occupier demand for the company's prime properties and good investor appetite for Romania’s prime commercial real estate to sustain the company's cash flows and values. Romania (Baa3 stable) benefits from a strong macroeconomic environment with economic growth above the EU average in recent years. However, the market is not as mature as in core Western European countries and is subject to more volatility in a recession scenario that could affect property values. We note positively that the vast majority of the leases are denominated in Euro and largely mitigate currency risk.
Credit Strengths » Leading Romanian real estate company with positive track record focused on prime office properties in
Bucharest
Exhibit
81% of portfolio constitutes offices in prime areas of Bucharest As of December 2016
Fair value, EUR mln % of portfolio
Office 796 81% Logistics 50 5% Residenti 92 10% Retail 20 2% Land 18 2%
Source: Company’s data
» Positive fundamentals support Romania’s Commercial Real Estate market. However, we also see higher risks compared to core Euro area countries
» Expansion into new Eastern European countries provide growth opportunities and diversification, but also increases the risk profile of the portfolio
» Controlled development programme
» Moderate leverage, improved fixed charge coverage and high protection to unsecured creditors pro-forma for the bond issuance
» Some track record in equity raises and access to debt capital markets pro-forma for the bond issuance
» Adequate liquidity supported by high amount of unencumbered assets; low refinancing risk pro-forma for the bond issuance
22 MOODY’S INSIDE CEE 12 September 2017
Rating Outlook » The company is well positioned in the Ba2 rating. The stable outlook reflects our expectation that the
company will continue to generate stable cash flows from its existing portfolio, and that commercial real estate and economy fundamentals will remain strong in Romania. We also expect that any expansion in new countries will not lead to significant increases in leverage because of the company’s financial policy of maintaining loan to value below 35%, and that the company will maintain a high level of unencumbered assets.
Factors that Could Lead to an Upgrade » Maintain current low level of leverage, as measured by Moody's-adjusted gross debt/assets
» Fixed charge cover above 2.5x on a sustained basis
» Further geographical diversification
» Successful expansion into new countries in line with the track record achieved in Romania, leading to growth in rental income and low vacancy
Factors that Could Lead to a Downgrade » Effective leverage sustained above 45% as measured by Moody's-adjusted gross debt/assets
» Fixed charge cover sustainably below 1.5x
» Weakening of liquidity
» Weakness in the Romanian economy impacting negatively property values in Euro currency value equivalent
» Failure to execute the expected bond issuance
EXHIBIT
Strong lease maturity profile with weighted average unexpired lease length of 6.5 years % of expiring leases as of March 2017
Source: Company’s data
23 MOODY’S INSIDE CEE 12 September 2017
Joanna Fic VP-Sr Credit Officer +44.20.7772.5571 [email protected]
Helen Francis VP-Sr Credit Officer +44.20.7772.5422 [email protected]
Andrew Blease Associate Managing Director +44.20.7772.5541 [email protected]
Utilities – Poland: Amended law on renewables is credit negative for renewable energy producers, positive for state-owned utilities Originally published on 21 August 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
On 14 August 2017, the President of Poland signed a law amending the Act on Renewable Energy Sources dated February 2015 (the RES Act). The revised law is credit negative for renewable energy producers, which entered into long-term contracts for the sale of the so called “green certificates” with prices linked to a substitution fee, as it will significantly reduce their profitability. It will curb subsidies and benefit energy suppliers which purchase green certificates under such long-term contracts, with ENERGA S.A. (Baa1 stable) standing to benefit most from the amended law.
The amendment to the RES Act provides for a change in the level of the substitution fee from a fixed amount to an amount linked to the market price of the certificates, and will be set at 125% of their average price in the prior year. Given that the market price of green certificates has stayed at some PLN30-40 per megawatt hour (MWh) since September 2016, the substitution fee will be significantly lowered from its current amount of PLN300.03/ MWh.
EXHIBIT 1
Price of green certificates has collapsed and is significantly below the substitution fee
Source: Polish Power Exchange, Moody’s Investors Service
We estimate that the substitution fee will decline to around PLN40/MWh in 2018, absent a major recovery in the price of green certificates from the current levels. Since a reduction in the substitution fee will trigger an automatic adjustment in the terms of some long-term contracts for the sale of green certificates, revenues of renewable energy producers will decrease by about a third to PLN190-200/MWh based on wholesale energy prices of around PLN150-160/MWh. Such a material decline in earnings will make many renewable energy projects unprofitable, given the estimated levelised cost of electricity for onshore wind farms in the range of PLN240-320/MWh (depending on the wind conditions at the site).
Not all the renewable energy producers will be equally affected by the amendment to the RES Act given that the terms of the bilateral long-term contracts vary. However, the change in law will add to the pressures on the industry, which has been already adversely impacted by the decline in green certificate prices and regulatory changes. See Wind Asset Impairments Reflect Impact of Recent Regulatory Changes and Low Green Certificate Prices, July 2016.
24 MOODY’S INSIDE CEE 12 September 2017
The amendment to the RES Act will benefit energy supply companies, which purchase green certificates from renewable energy producers as a reduction in the substitution fee will lower their costs. These include subsidiaries of state-owned energy groups - ENERGA, Enea S.A., PGE Polska Grupa Energetyczna S.A. (Baa1 stable) and TAURON Polska Energia S.A..
ENERGA has estimated that the total impact of the revised law will improve the company’s EBITDA by around PLN150 million in 2018 based on sales volume of 19 terawatt hours (TWh). This compares with the company’s EBITDA of around PLN2.1 billion in the last twelve months to June 2017. The impact on PGE will be limited as the majority of the company’s contracts are linked to market prices and given the group's size with reported EBITDA of around PLN7.7 billion in the last twelve months to June 2017. In this regard we note that TAURON and Enea terminated their long-term contracts early, which prompted a legal action from their counterparties. The court cases are pending resolution.
The RES Act is pending further amendments and other legislation is expected to be passed later this year. Whilst this may be positive for the industry, given, for example, the expected reversal of the negative impact of the Act on Investments in Wind Farms on the profitability of the existing wind farms due to an increase in property tax – see Poland's Law on Wind Farms Will Hinder Growth in Renewable Energy Generation, June 2016, we view the frequent changes of the law and regulation pertaining to renewable energy sources as adding uncertainty, increasing risk to creditors.
We caution that the lack of predictability of the regulatory framework may impact the financeability of renewable energy projects in Poland as regulatory risk is an important credit consideration. Without support, much renewable output is not viable. In this regard a stable and transparent framework is key to support investments, if Poland is to meet the EU targets, which include increasing the share of renewable energy in final energy consumption to 15% by 2020.
EXHIBIT 2
Increase in RES capacity has slowed down but more investments are needed to meet 2020 renewable energy target Renewable energy generation by type
Note: National target is based on the National Action Plan and reflects the share of renewable energy in electricity consumption only. Source: Energy Regulatory Office and estimates, Moody’s Investors Service
FINANCIAL INSTITUTIONS RESEARCH
25 MOODY’S INSIDE CEE 12 September 2017
Arif Bekiroglu Assistant Vice President - Analyst +44.20.7772.1713 [email protected]
Poland’s proposed relief fund for foreign-currency mortgages would hurt banks’ profits Originally published on 29 August 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
On 23 August, Poland’s President Andrzej Duda submitted a draft bill to the parliament that proposes a new fund to help troubled foreign-currency mortgage borrowers. The proposal, which has the support of Poland’s financial regulator Komisja Nadzoru Finansowego (KNF), is credit negative for Polish banks because it would reduce their profitability, which is already challenged by a tax introduced last year and narrow margins amid low interest rates. However, it would reduce credit losses from foreign-currency mortgages.
The proposal calls for lenders to contribute an amount equal a maximum of 0.5% of their total foreign-currency mortgage exposures every quarter. The contribution would cost banks up to PLN3.2 billion ($890 million) per year, or 20% of our estimate of banks’ 2017 pre-tax earnings. The banks would have up to six months to make use of their own contributions to reimburse themselves on their foreign-currency mortgage conversion costs. Upon the expiration of that period, all banks would be able to access the mortgage relief fund.
The bill would reduce banks’ foreign-currency mortgage losses in the event of Polish zloty’s significant devaluation. Banks state that on average a 20% principal write-down of a foreign-currency mortgage is required to maintain an equivalent monthly instalment cost for borrowers post conversion. As a result, their 2% annual contribution would be sufficient to cover the restructuring costs related to the conversion of 10% of their foreign-currency loans into zloty.
Legacy foreign-currency mortgages (the vast majority of which are denominated in Swiss francs) comprise 13.4% of Polish banks’ total loan book. These loans had a nonperforming loan (NPL) ratio of 3.5% as of June 2017, despite the 12% appreciation of the Swiss franc between the end of 2015 and the end of 2016 and a 10.1% year-on-year contraction of the loan portfolio as of June 2017 (see Exhibit 1). Local-currency mortgages constituted 35% of banks’ loans over the same period, growing by 10.5% from the year-ago period and having an NPL ratio of 2%.
EXHIBIT 1
Polish banks’ mortgage loan book and performance
Source: The banks and Moody’s Investors Service
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0
25
50
75
100
125
150
175
200
225
250
Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Jun 17
PLN
Bill
ions
Foreign-Currency Mortgage Loans - left axis Zloty-Denominated Mortgage Loans - left axisForeign-Currency Mortgage Loans NPL Ratio - right axis Zloty-Denominated Mortgage Loans NPL Ratio - right axis
26 MOODY’S INSIDE CEE 12 September 2017
However, the cost of the proposed bill is significantly lower and spreads across quarters rather than as an upfront payment, as was the case with a previous bill in 2016 that would have been detrimental to the solvency of the banking system. It is unclear whether the new proposal will be in addition to, or in place of, a draft excess foreign-currency spread reimbursement proposal that involves banks paying a PLN4 billion upfront cost and has been on hold for some time.
Some banks would be better positioned than others to cope with the payments into the fund owing to their low exposure to foreign-currency mortgages and strong profitability. However, banks such as Bank Millennium S.A. (Ba1 stable, ba35), which has the highest exposure to foreign-currency mortgages, and Bank BGZ BNP Paribas S.A. (Baa2 stable, ba2), which has weak earnings relative to the required contribution to the fund, would report pre-tax earnings declines of up to 40%. Getin Noble Bank S.A. (Ba2 negative, b1) would continue to report losses (see Exhibit 2).
EXHIBIT
Rated Polish banks’ key indicators and the proposed mortgage relief fund’s effect on earnings
Source: The banks and Moody’s Investors Services
We expect the proposal to be considered in conjunction with a planned increase in risk weights to 150% from 100% on foreign-currency mortgages under the standardized approach. Foreign-currency mortgages restructured into local currency would lead to 80% capital relief because of the 35% risk weighting on local-currency mortgages and write-offs. As a result, the proposal should not affect banks’ growth or ability to lend given their sufficient funding profile and capital relief. However, banks using an advanced internal-rating-based approach on mortgages would not materially benefit. Furthermore, as banks’ share of foreign-currency loans declines, the bank-specific additional foreign-currency mortgage capital buffer of up to 3% is likely to decline.
5 The bank ratings shown in this report are the bank’s deposit rating and baseline credit assessment.
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
ING BankSlaski
Pekao Credit AgricoleBank Polska
BZ WBK Polish BankingSector
PKO BP mBank BankMillennium
Bank BGZBNP Paribas
Reduction in on Pre-Tax Income - left axisForeign-Currency Loans as a Percent of Gross Loans - left axisReturn on Average Assets - right axis
27 MOODY’S INSIDE CEE 12 September 2017
Arif Bekiroglu Assistant Vice President – Analyst +44.20.7772.1713 [email protected]
Aleksander Blacha Associate Analyst +44.20.7772.5282 [email protected]
Armen L. Dallakyan Vice President –Senior Analyst +44.20.7772.1688 [email protected]
Carola Schuler Managing Director –Banking +49.69.70730.766 [email protected]
Banking System Outlook - Czech Republic: Economic and employment growth will support loan demand Originally published on 26 April 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Our outlook for the Czech banking system is stable. The outlook expresses our expectations of how bank creditworthiness will evolve in this system over the next 12 to 18 months.
We maintain a stable outlook on the Czech banking system. Household spending and a new round of European Union-funded investment will propel real GDP growth to 2.7% in 2017. Together with rising employment, this will support debt servicing and credit demand into 2018, creating favourable conditions for the country's banks. We don't expect much impact from the central bank's exit from the euro peg because of supportive economic conditions and the structural features of the banks.
Loan performance will improve mildly. Strong employment levels, the growing economy and low funding costs will benefit loan performance, but this will be tempered by new. delinquencies as loans mature after a period of rapid growth and intermittant repayment problems start to emerge. A modest increase in benchmark interest rates into 2018 could put mild pressure on households' debt-servicing capacity but will be manageable for our rated banks.
Robust capitalisation will decline modestly. Lower profits, generous dividend payouts, and negative valuation losses on Available for Sale securities as the local currency appreciates will drive a decline in capital. Average core equity Tier 1 capital stood at 17.9% at the end of 2016, unchanged from a year earlier. More thinly capitalised banks are likely to tap financial markets to keep their narrowing capital cushions above minimum thresholds.
Market funding will increase moderately. Low interest rates and rising household spending will translate into lower savings. Deposits at the three leading banks significantly exceed their loans, but smaller banks will increasingly need to turn to covered bonds to fund their lending. Meeting new rules for Minimum Requirements for Own Funds and Eligible Liabilities1could lead to debt issuance.
Profitability, while strong, will come under pressure. Low interest rates, inter-bank competition, an expected rise in funding costs and lower fee and commission income will constrain profitability and push banks to focus on higher-yielding (and riskier) small business and unsecured consumer loans, particularly in light of the improving economic outlook.
We view the likelihood of government support for the country's top three banks as moderate.This follows Czech implementation of the EU's Bank Recovery and Resolution Directive, which allows for the bail-in of bank creditors.
28 MOODY’S INSIDE CEE 12 September 2017
Exhibit 2
Key Indicators for Moody's-Rated Banks in the Czech Republic
1H2016 2015 2014 2013
Problem Loans / Gross Loans 3.7% 4.2% 5.1% 5.5%
Loan Loss Reserves / Problem Loans 65.3% 71.5% 69.8% 66.4%
Problem Loans / (Shareholders' Equity + Loan Loss Reserves) 19.3% 18.5% 20.4% 22.9%
Loan Loss Provisions / Gross Loans 0.2% 0.3% 0.5% 0.5%
Tier 1 Ratio 16.4% 17.3% 16.4% 15.8%
Tangible Common Equity / Risk Weighted Assets 18.6% 19.7% 20.5% 19.3%
Tangible Common Equity / Total Assets 8.9% 9.9% 10.5% 9.5%
Net Income / Tangible Assets 1.4% 1.6% 1.8% 1.6%
Net Income / Average Total Assets 1.5% 1.6% 1.6% 1.6%
Net Income / Average Shareholders' Equity 13.7% 14.0% 14.7% 16.0%
Market Funds / Tangible Banking Assets 17.0% 13.7% 12.6% 17.4%
Liquid Banking Assets / Tangible Banking Assets 34.2% 38.4% 39.5% 44.1%
Note: All figures include Moody’s Standard Adjustments2. Figures exclude Raiffeisenbank, a.s. and UniCredit Bank Czech Republic and Slovakia, a.s. Sources: Moody’s Investors Service, banks' financials
29 MOODY’S INSIDE CEE 12 September 2017
Janko Lukac Analyst Title Associate Analyst +49.69.70730.925 [email protected]
Matthias Hellstern Managing Director – Corporate Finance +49.69.70730.745 [email protected]
Peer comparison – Banca Comerciala Romana, BRD - Groupe Societe Generale, Raiffeisen Bank SA
Buoyant economy will help restore loan quality but new bank legislation will increase costs Originally published on 24 November 2016 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Romania's three rated banks, Banca Comerciala Romana (BCR – Ba1 positive, b2), BRD - Société Générale (BRD – Baa3 positive, b1) and Raiffeisen Bank SA (Raiffeisen – Ba1 positive, ba3) will gain from Romania's expanding economy as they work to reduce large stocks of problem loans on their books. But new banking laws in Romania, one that allows mortgage borrowers to walk away from their loans, and another in process that would mandate a conversion of Swiss franc mortgages into local currency, will increase costs materially over the next 12 to 18 months.
We expect robust real GDP growth of 4.2% and 3.7% in Romania for 2016 and 2017, respectively, driven by strong private and public consumption. Declining unemployment and one of the lowest levels of private-sector indebtedness in the European Union (EU) will support banks' asset quality and boost business opportunities.
The ongoing economic expansion will help to reduce large stocks of nonperforming loans (NPLs) at the country's banks that date from the 2008 financial crisis. The growing economy will gradually improve borrowers' debt servicing capacity and create more opportunities for banks selling their problem loans. We expect NPLs as a proportion of total loans at the three rated banks to decline by two to three percentage points over the next 12 to 18 months.
Problems loans are in decline but remain high Non performing loans % total loans and NPL coverage ratios
Note: NPLs = non-performing loans; LLR/NPLs = loan loss reserves / non-performing loans; NPLs/(SE+LLR) = non-performing loans / (shareholders' equity + loan loss reserves) Source: BCR, BRD, Raiffeisen, Moody's Investors Service
Balance sheet clean-up measures in the past few years have already led to a significant reduction in the NPL ratios for BCR and BRD, the two largest banks in Romania that had a weaker asset quality compared with Raiffeisen. BCR’s NPL ratio dropped to 14% in June 2016 from 29.2% in December 2013, while at BRD this ratio declined to 14.4% from 24.5% during the same period. For comparison, we estimate Raiffeisen’s impaired loan ratio at 8.5% as of December 2015, an improvement from 10.4% in 2013.
However, new legislative measures approved in 2016 pose downside risks, chiefly for profitability. We expect a “mortgage walk-away” law adopted in late April to have an adverse impact on loan quality and profitability. Nevertheless, the benign economic conditions will moderate the impact for the three rated
30 MOODY’S INSIDE CEE 12 September 2017
banks and we expect that additional provisioning costs incurred as a result of rising defaults on mortgages will be covered by banks' revenues.
All three banks have adequate earnings to absorb additional costs from the “mortgage walk-away” law Profitability ratios
Note: PPI / Average TA = pre-provision income / average total assets; ROAA = net income / average total assets Source: BCR, BRD, Raiffeisen, Moody's Investors Service
The law allows mortgage borrowers to opt for a strategic default, (i.e., defaulting on the debt despite being financially able to service it) and be discharged of all financial obligations under the mortgage agreement. We understand that only a limited number of borrowers have decided to make use of this provision so far. However, the full negative impact of the implementation of the law will become clearer after several months as more borrowers may decide to default and banks will likely challenge the retrospective application of the law in courts.
The banks must also contend with a new law that mandates a conversion of mortgage loans taken out in Swiss francs (CHF) into Romanian lei (RON) at exchange rates prevalent at the time of loans’ origination. The law has been approved by parliament but still requires the president's signature and there may be final amendments. Further, the government has challenged the approved version of the law in the Constitutional Court with the aim that the law should support only those borrowers that are financially unable to service their mortgages.
According to the National Bank of Romania (BNR, the central bank) and based on the current law the cost of conversion for the banking sector could reach RON 2.4 billion (EUR532 million), which equals 50% of their 2015 net income and 7.6% of total capital at December 2015. Although CHF-denominated mortgages accounted for only 5.3% of total mortgage loans in August 2016, the
relatively large size of the conversion cost is due to around 80% appreciation of Swiss franc against the Romanian lei since 2006-2008, when most CHF-denominated mortgages were extended. At the same time, the conversion of mortgages into local currency will remove the credit risk stemming from further CHF appreciation and lead to lower risk-weighting for these assets and therefore reduced capital requirements for the banks. Among the three rated banks only Raiffeisen is likely to be affected from the conversion due to its higher exposure to CHF-denominated mortgages (6.5% of total gross loans as of December 2015).
SUB-SOVEREIGN RESEARCH
31 MOODY’S INSIDE CEE 12 September 2017
Dagmar Urbankova Analyst +420.22.410.6440 [email protected]
Czech municipalities will get larger share of value-added tax, a credit positive Originally published on 29 August 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
On 25 August, Czech Republic’s parliament passed on to the Senate a bill that gives municipalities a higher share of value-added tax (VAT) collections starting in January 2018. The adjustment to tax sharing between the state and lower-tier governments is credit positive for Czech municipalities because it will provide additional non-earmarked funds to municipalities and improve their debt-servicing capacity.
The bill raises municipalities’ share of national collections of the VAT to 23.58% in 2018 from 21.40% currently, providing them an additional CZK8.5 billion. Such an increase will significantly improve municipalities’ financial position because it equals 3.3% of the operating revenue that municipalities collected in 2016. Before the measure takes effect, the Senate must approve the bill and the Czech Republic’s president must sign it into law. We expect this process to be completed by the end of 2017.
VAT proceeds will reach CZK91.5 billion in 2018, up from a low CZK55.7 billion in 2012, as a result of an expansion of the national economy and the Ministry of Finance’s more effective collection of this tax starting in 2016. Both factors together resulted in a 5.5% increase in collection over 2015.
The VAT, personal income taxes and corporate income taxes are collected at the national level and redistributed to municipalities, regions and the state budget. The bill before the Senate would result in the VAT equalling nearly a half of municipalities’ shared taxes, and would push those shared taxes to more than CZK171 billion, a 20% increase over 2015 levels (see Exhibit 1).
EXHIBIT
Czech municipalities’ proceeds from shared taxes, 2015-18
Note: Data for 2017 and 2018 are estimates. Sources: Czech Ministry of Finance and Moody’s Investors Service
Czech Republic’s four largest cities in aggregate will receive an additional CZK2.4 billion because of the higher allocation of VAT. Prague (A1 stable) will receive CZK1.7 billion, Brno (A1 stable) will get CZK292 million, Ostrava (A2 positive) will get CZK228 million and Plzen (unrated) will get CZK132 million. Exhibit 2 shows the total increase in funding to the cities, including the increase from the recalculation of the distribution formula, which depends on land area, population size and number of pupils.
0
20
40
60
80
100
120
140
160
180
2015 2016 2017 Estimate 2018 Estimate
CZK
Bill
ions
32 MOODY’S INSIDE CEE 12 September 2017
EXHIBIT
Four largest czech cities’ VAT proceeds in 2016 and estimated 2018 proceeds CITY RATING 2016 2018*
Prague A1 stable CZK21.4 billion CZK25.1 billion
Brno A1 stable CZK3.6 billion CZK4.3 billion
Ostrava A2 positive CZK2.8 billion CZK3.3 billion
Plzen Unrated CZK1.6 billion CZK1.9 billion
Note: * Data for 2018 are Moody’s estimates. Sources: The cities
VAT collections constitute 28% of municipalities’ operating revenue. The shared-tax revenue is not earmarked for specific spending purposes and provides budgetary flexibility to cities. We expect that the rise in the share of VAT proceeds will boost already-sound operating surpluses (see Exhibit 3). Czech cities have operating margins well above international standards (typically close to 10%), with the potential to grow to 28% of operating revenue by 2018 from 26% in 2015. Higher operating margins can help the cities accelerate capital spending that declined in 2016 or extend their debt-servicing capacity.
EXHIBIT
Czech municipalities’ ratio of gross operating surplus to operating revenue, operating revenue and value-added tax receipts, 2015-18
Note: Data for 2017 and 2018 are Moody’s estimates Sources: Czech Ministry of Finance and Moody’s Investors Service
25.0%
25.5%
26.0%
26.5%
27.0%
27.5%
28.0%
28.5%
29.0%
29.5%
30.0%
0
50
100
150
200
250
300
2015 2016 2017 Estimate 2018 Estimate
CZK
Bill
ions
VAT Collection - left axis Operating Revenue - left axis Gross Operating Surplus/Operating Revenue - right axis
STRUCTURED FINANCE RESEARCH
33 MOODY’S INSIDE CEE 12 September 2017
Greg O'Reilly, CFA Vice President-Senior Analyst +44.20.7772.8673 [email protected]
Erwan Audigou, CFA Associate Analyst +44.20.7772.1546 [email protected]
GNB Auto Plan 2017 SP. Z O.O. Originally published on 29 August 2017 please contact Moody’s client services desk on +44.20.7772.5454 or by email to [email protected].
Series Rating Amount (Million) % of Assets
Legal Final Maturity Coupon
Subordinated loan(1)
Reserve fund(2)
Total Credit Enhancement (3)
Senior Bonds Aa3 (sf) PLN 500 71.43% Jul-30 3mWibor +1.2% 28.57% 1.79% 30.36%
Mezzanine Bonds
NR PLN 150 21.43% Jul-30 Variable 7.14% 0.00 7.14%
Sub loan NR PLN 50 7.14% Variable 0.00 0.00 0.00
Total issuance PLN 700 100.0%
The ratings address the expected loss posed to investors by the legal final maturity. In Moody’s opinion the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. Moody’s ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors. (1) At close (2) As a % of the total portfolio (3) ) No benefit attributed to excess spread
GNB Auto Plan 2017 SP. Z O.O. (the issuer) is a revolving cash securitisation of auto receivables extended by Getin Noble Bank S.A. (Ba2 Deposits/Ba1 (cr)) (“Getin Noble”) to obligors located in Poland. The portfolio consists of auto loans extended to private and SME obligors. The originator and servicer is Getin Noble.
Moody's analysis focused, among other factors, on (i) an evaluation of the underlying portfolio of auto loans; (ii) the macroeconomic environment; (iii) the effectiveness of the back-up servicer and back-up servicer facilitator arrangements; (iv) the credit enhancement provided by subordination; (v) the liquidity support available in the transaction by way of the reserve fund and available principal to pay interest; and (vi) the legal and structural integrity of the issue.
Our cumulative default expectation for the asset pool is 10.0%, recovery rate is 20.0% and portfolio credit enhancement (PCE) is 30.0%.
The local currency country ceiling for Poland is Aa3 as of the date of closing.
Credit Strengths » Granular portfolio composition: The securitised portfolio is granular with the largest and twenty largest
borrowers representing 0.07% and 0.83% of the pool, respectively. The portfolio also benefits from a good geographic diversification. (See “Asset Description” – “Assets at Closing” - “Pool Characteristics”)
» Back-up servicing: Idea Bank S.A. (NR) will be appointed back-up servicer at closing of the transaction and will step in upon occurrence of a servicer termination event. Upon a default of Getin Noble Bank, the Back-up Servicer will instruct the borrowers to make payments to a new collection account.
» Back-up Servicer Facilitator: Citibank N.A., London Branch (A1 (cr)) acts as back-up facilitator in the deal. The back-up servicer facilitator will find a successor servicer following a servicer termination event, in circumstances where a back-up servicer is not already in place.
» Significant excess spread: The transaction benefits from significant excess spread. The initial portfolio weighted average interest rate is approximately 7.0% p.a. so there will be close to 5% of annualised excess spread at closing available to cover defaults arising on the underlying portfolio or for general liquidity needs of the issuer.
34 MOODY’S INSIDE CEE 12 September 2017
» Separate Cash Manager and estimation language: The cash manager is responsible for calculations and payment instructions at the issuer level. This role will be carried out by Citigroup NA., London Branch (A1/(P)P-1 (Issuer Ratings)). In case of a monthly servicing report failure event, the cash manager will apply the specific, simplified waterfall for such an event as defined in the terms and conditions of the bonds.
» Liquidity: The transaction benefits from a liquidity reserve fund at closing sized at 2.5% of the senior bonds at closing. The fund will not amortise during the life of the transaction.
Credit Challenges » Historical information: Although the historical performance data provided by Getin Noble Bank covers a
meaningful period of time, from 2006 to 2016, scoring models have changed over that period of time, and performance has been volatile with high rates observed for some vintages and obligor and vehicle types. Moody's has taken this into consideration in its quantitative analysis
» Lack of swap arrangements: The transaction does not benefit from a swap agreement to hedge any potential mismatch between the interest collections received from the assets and the interest payable on the rated bonds. However, Moody's notes that there is a natural hedge given that the current assets in the pool, as well as the bonds, track WIBOR rates. Nonetheless, there remains slight mismatches in the timing with which interest rates on the asset would move to reflect changes in WIBOR rates. In addition, there are no criteria preventing the inclusion of fixed rate loans during the revolving period.
» Commingling risk: Collections are paid by borrowers are on only three dates during the month, increasing concentration of receivable cash flows. This is mitigated by transfer of the collection amounts into the issuer account on the following business day. However, collections received by the servicer after its default forms part of the insolvency estate of the servicer, thereby causing losses to the Issuer. This risk was taken into account by Moody's in its quantitative analysis.
» Technical Insolvency risk of the Issuer: Moody's understands that non-petition provisions may not be effective and may be considered unenforceable under Polish law. Limited recourse is not effective in limiting the amounts owed under Polish bond law. As a result, there is a risk of technical insolvency if the issuer fails an insolvency test based on the value of its assets to its liabilities. Moody's considered this in its quantitative analysis. For more information, please see the section “Securitization Description - Asset Transfer/True Sale/Bankruptcy Remoteness”.
MOODY'S CEE COVERAGE LIST
35 MOODY’S INSIDE CEE 12 September 2017
Ratings in Central and Eastern Europe, 8 August 2017 Name LT Rating Rating Type Rating Date Outlook Market Segment Location
Albania, Government of B1 LT Issuer Rating - Fgn Curr 4.8.17 STA Sovereign & Supranational ALBANIA
Central European Media Enterprises Ltd. B2 LT Corporate Family Ratings - Fgn Curr 11.7.17 POS Corporates BERMUDA
Srpska, Republic of B3 LT Issuer Rating - Fgn Curr 12.1.15 STA Sub-Sovereign BOSNIA AND HERZEGOVINA
Bosnia and Herzegovina, Government of B3 LT Issuer Rating - Fgn Curr 26.2.16 STA Sovereign & Supranational BOSNIA AND HERZEGOVINA
Bulgarian Energy Holding EAD Ba1 LT Corporate Family Ratings 1.8.16 STA Corporates BULGARIA
Bulgarian Telecommunications Company EAD B1 LT Corporate Family Ratings 26.7.17 POS Corporates BULGARIA
First Investment Bank AD B1 LT Bank Deposits - Fgn Curr 4.7.17 STA Financial Institutions BULGARIA
Municipal Bank AD Ba3 LT Bank Deposits - Fgn Curr 1.7.15 STA Financial Institutions BULGARIA
Raiffeisenbank (Bulgaria) EAD Baa3 LT Bank Deposits - Fgn Curr 13.12.16 STA Financial Institutions BULGARIA
Bulxgaria, Government of Baa2 LT Issuer Rating - Fgn Curr 26.5.17 STA Sovereign & Supranational BULGARIA
Agrokor D.D. Ca LT Corporate Family Ratings - Fgn Curr 2.6.17 NEG Corporates CROATIA
Croatian Bank for Reconstruction & Develop. Ba2 LT Issuer Rating - Fgn Curr 14.3.16 STA Financial Institutions CROATIA
Hrvatska Elektroprivreda d.d. Ba2 LT Corporate Family Ratings - Fgn Curr 14.3.17 STA Infrastructure & Project Finance
CROATIA
Zagreb, City of Ba2 LT Issuer Rating 13.3.17 STA Sub-Sovereign CROATIA
Zagrebacki Holding D.O.O. Ba2 Senior Unsecured - Fgn Curr 5.7.17 STA Sub-Sovereign CROATIA
Croatia, Government of Ba2 LT Issuer Rating - Fgn Curr 10.3.17 STA Sovereign & Supranational CROATIA
Brno, City of A1 LT Issuer Rating 27.6.14 STA Sub-Sovereign CZECH REPUBLIC
CEPS a.s. A2 LT Issuer Rating - Fgn Curr 28.7.15 STA Infrastructure & Project Finance
CZECH REPUBLIC
Ceska Lipa, City of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Ceska Sporitelna, a.s. A2 LT Bank Deposits - Fgn Curr 17.3.15 STA Financial Institutions CZECH REPUBLIC
Ceska telekomunikacni infrastruktura a.s. Baa2 LT Issuer Rating 11.7.16 STA Corporates CZECH REPUBLIC
Ceske drahy, a.s. Baa2 LT Issuer Rating - Fgn Curr 9.5.16 STA Corporates CZECH REPUBLIC
Ceskoslovenska Obchodni Banka, a.s. A2 LT Bank Deposits - Fgn Curr 17.3.15 STA Financial Institutions CZECH REPUBLIC
Cesky Aeroholding, a.s. A1 LT Issuer Rating - Fgn Curr 3.2.17 STA Infrastructure & Project Finance
CZECH REPUBLIC
CEZ, a.s. Baa1 Senior Unsecured - Fgn Curr 6.4.16 STA Corporates CZECH REPUBLIC
Czech Export Bank, a.s. A1 LT Issuer Rating 16.12.15 STA Financial Institutions CZECH REPUBLIC
Klatovy, City of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Komercni Banka, a.s. A2 Long Term Rating 17.3.15 STA Financial Institutions CZECH REPUBLIC
Liberec, City of Baa1 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Liberec, Region of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
MONETA Money Bank, a.s. Baa2 LT Bank Deposits - Fgn Curr 31.1.17 STA Financial Institutions CZECH REPUBLIC
Moravian-Silesian, Region of A2 LT Issuer Rating - Fgn Curr 15.12.06 STA Sub-Sovereign CZECH REPUBLIC
Ostrava, City of A1 LT Issuer Rating 16.6.17 STA Sub-Sovereign CZECH REPUBLIC
Pojistovaci maklerstvi INPOL a.s. B1 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Financial Institutions CZECH REPUBLIC
Prague, City of A1 LT Issuer Rating - Fgn Curr 15.12.06 STA Sub-Sovereign CZECH REPUBLIC
Prostejov, City of A1 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
36 MOODY’S INSIDE CEE 12 September 2017
Name LT Rating Rating Type Rating Date Outlook Market Segment Location
South-Moravian Region A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Sprava a udrzba silnic Pardubickeho kraje A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Trebic, City of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Uherske Hradiste, City of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Usti, Region of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Vojenske lesy a statky CR, s.p. A1 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Corporates CZECH REPUBLIC
Zdar nad Sazavou, City of A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.5.16 STA Sub-Sovereign CZECH REPUBLIC
Czech Republic, Government of A1 LT Issuer Rating - Fgn Curr 14.10.16 STA Sovereign & Supranational CZECH REPUBLIC
OTP Jelzalogbank Zrt. (OTP Mtge Bk) - Mortgage Covered Bonds
Baa1
Structured Finance CZECH REPUBLIC
Raiffeisenbank a.s. - Mortgage Covered Bonds
A1
11.6.15
Structured Finance CZECH REPUBLIC
Eesti Energia AS Baa3 LT Issuer Rating - Fgn Curr 15.4.16 STA Corporates ESTONIA
Elering AS A2 LT Issuer Rating - Dom Curr 11.9.15 STA Infrastructure & Project Finance
ESTONIA
Tallinn, City of A2 LT Issuer Rating - Fgn Curr 24.3.17 STA Sub-Sovereign ESTONIA
Estonia, Government of A1 LT Issuer Rating - Fgn Curr 21.7.17 STA Sovereign & Supranational ESTONIA
Bank of China Limited, Hungarian Branch A1 LT Bank Deposits - Fgn Curr 2.3.16 STA Financial Institutions HUNGARY
Budapest Bank Rt. Ba2 LT Bank Deposits - Fgn Curr 26.7.16 STA Financial Institutions HUNGARY
Budapest, City of Baa3 LT Issuer Rating 7.11.16 STA Sub-Sovereign HUNGARY
Erste Bank Hungary Zrt. Baa3 LT Bank Deposits - Fgn Curr 26.7.16 STA(m) Financial Institutions HUNGARY
FHB Mortgage Bank Co. Plc. B1 LT Bank Deposits - Fgn Curr 7.11.16 STA Financial Institutions HUNGARY
Kereskedelmi & Hitel Bank Rt. Ba1 LT Bank Deposits - Fgn Curr 7.11.16 STA Financial Institutions HUNGARY
MFB Hungarian Development Bank Ltd. Baa3 LT Bank Deposits - Fgn Curr 7.11.15 STA Financial Institutions HUNGARY
MKB Bank Zrt. B2 LT Bank Deposits - Fgn Curr 26.7.16 STA Financial Institutions HUNGARY
MOL Hungarian Oil and Gas Plc Baa3 31.3.17 STA Corporates HUNGARY
OTP Bank NyRt Baa3 LT Bank Deposits - Fgn Curr 7.11.16 STA(m) Financial Institutions HUNGARY
OTP Jelzalogbank Zrt. (OTP Mortgage Bank)
Ba1 LT Bank Deposits - Fgn Curr
POS Financial Institutions HUNGARY
FHB Mortgage Bank Co. Plc. - Mortgage Covered Bonds
Baa2
Structured Finance HUNGARY
Hungary, Government of Baa3 LT Issuer Rating - Fgn Curr 4.11.16 STA Sovereign & Supranational HUNGARY
National Bank of Hungary Baa3 LT Issuer Rating 4.11.16 STA Sovereign & Supranational HUNGARY
NEPI Rockcastle Plc Baa3 24.7.17 POS Corporates ISLE OF MAN
JSC Development Finance Institution Altum Baa1
STA Financial Institutions LATVIA
Latvenergo AS Baa2 LT Issuer Rating - Fgn Curr 12.2.16 STA Corporates LATVIA
Riga, City of Baa1 LT Issuer Rating - Fgn Curr 16.2.15 STA Sub-Sovereign LATVIA
SC Citadele Banka Ba2 LT Bank Deposits - Fgn Curr 17.6.15 POS Financial Institutions LATVIA
Latvia, Government of A3 LT Issuer Rating - Fgn Curr 14.7.17 STA Sovereign & Supranational LATVIA
Siauliu Bankas, AB Ba1 LT Bank Deposits - Fgn Curr 16.6.16 RUR Financial Institutions LITHUANIA
Lithuania, Government of A3 LT Issuer Rating - Fgn Curr 8.5.15 STA Sovereign & Supranational LITHUANIA
37 MOODY’S INSIDE CEE 12 September 2017
Name LT Rating Rating Type Rating Date Outlook Market Segment Location
4Finance Holding S.A. B3 LT Corporate Family Ratings 31.8.16 POS Financial Institutions LUXEMBOURG
4Finance, S.A. B3 BACKED Senior Unsecured - Fgn Curr 31.8.16 POS Corporates LUXEMBOURG
Montenegro, Government of B1 LT Issuer Rating - Fgn Curr 14.5.16 NEG Sovereign & Supranational MONTENEGRO
Adria Midco B.V B2 LT Corporate Family Ratings 11.7.17 NEG Corporates NETHERLANDS
Avast Holding B.V. Ba3 LT Corporate Family Ratings 26.7.17 NEG Corporates NETHERLANDS
Avast Software B.V. Ba3 Senior Secured Bank Credit Facility - Fgn Curr
26.7.17 NEG Corporates NETHERLANDS
CETIN Finance B.V. Baa2 BACKED Senior Unsecured - Fgn Curr 1.12.16 STA Corporates NETHERLANDS
Huvepharma International BV Ba3 LT Corporate Family Ratings 19.2.16 STA Corporates NETHERLANDS
SPP Infrastructure Financing B.V. Baa2 BACKED Senior Unsecured - Dom Curr 22.5.15 STA Corporates NETHERLANDS
United Group B.V. B2 BACKED Senior Secured - Dom Curr 11.7.17 NEG Corporates NETHERLANDS
Digi Communications N.V. B1 10.10.16 POS Structured Finance NETHERLANDS
Bank BGZ BNP Paribas S.A. Baa2 LT Bank Deposits - Fgn Curr 21.5.15 STA Financial Institutions POLAND
Bank Millennium S.A. Ba1 LT Bank Deposits - Fgn Curr 26.6.15 STA Financial Institutions POLAND
Bank Polska Kasa Opieki S.A. A2 LT Bank Deposits - Fgn Curr 12.12.16 STA Financial Institutions POLAND
Bank Zachodni WBK S.A. A3 LT Bank Deposits - Fgn Curr 21.5.15 STA Financial Institutions POLAND
Ciech SA Ba3 LT Corporate Family Ratings - Dom Curr
3.12.15 POS Corporates POLAND
Cognor S.A. Caa2 LT Corporate Family Ratings - Fgn Curr 7.1.16 STA Corporates POLAND
Credit Agricole Bank Polska S.A. Baa1 LT Bank Deposits - Fgn Curr 21.5.15 STA Financial Institutions POLAND
Cyfrowy Polsat S.A. Ba2 LT Corporate Family Ratings - Fgn Curr 16.5.16 STA Corporates POLAND
Energa S.A. Baa1 LT Issuer Rating - Dom Curr 9.2.17 STA Corporates POLAND
Getin Noble Bank S.A. Ba2 LT Bank Deposits - Fgn Curr 21.5.15 NEG Financial Institutions POLAND
ING Bank Slaski S.A. A3 LT Bank Deposits - Fgn Curr 21.5.15 STA Financial Institutions POLAND
mBank S.A. Baa2 LT Bank Deposits - Fgn Curr 21.5.15 STA Financial Institutions POLAND
Olsztyn, City of Baa1 LT Issuer Rating - Fgn Curr 15.5.17 STA Sub-Sovereign POLAND
Pfleiderer Group S.A. Ba3 22.3.17 STA Corporates POLAND
PGE Polska Grupa Energetyczna S.A. Baa1 LT Issuer Rating - Fgn Curr 12.2.16 STA Corporates POLAND
PKO Bank Hipoteczny S.A. Baa1 LT Issuer Rating - Fgn Curr 16.5.16 STA Financial Institutions POLAND
Polski Koncern Naftowy ORLEN S.A. Baa2 LT Issuer Rating - Dom Curr 13.4.17 STA Corporates POLAND
Polskie Gornictwo Naftowe I Gazownictwo S.A.
Baa3 LT Issuer Rating 16.5.17 STA Infrastructure & Project Finance
POLAND
Powszechna Kasa Oszczednosci Bank Polski S.A.
A3 LT Bank Deposits - Fgn Curr 16.5.16 STA Financial Institutions POLAND
Synthos S.A. Ba2 LT Corporate Family Ratings 16.9.14 STA Corporates POLAND
Warsaw, City of A2 LT Issuer Rating - Fgn Curr 15.5.17 STA Sub-Sovereign POLAND
PKO Bank Hipoteczny S.A. - Mortgage Covered Bonds
Aa3 Structured Finance POLAND
Poland, Government of A2 LT Issuer Rating - Fgn Curr 12.5.17 STA Sovereign & Supranational POLAND
Alba Iulia, Municipality of Ba1 LT Issuer Rating - Fgn Curr 15.12.15 POS Sub-Sovereign ROMANIA
Alpha Bank Romania S.A. Ba3 LT Issuer Rating - Fgn Curr 11.7.17 STA Financial Institutions ROMANIA
Banca Comerciala Romana S.A. Ba1 LT Bank Deposits - Fgn Curr 1.9.16 POS Financial Institutions ROMANIA
BRD - Groupe Societe Generale Baa3 LT Bank Deposits - Fgn Curr 1.9.16 POS Financial Institutions ROMANIA
Globalworth Real Estate Investments Limited Ba2 26.5.17 STA Corporates ROMANIA
Raiffeisen Bank SA Baa3 LT Bank Deposits - Fgn Curr 21.9.15 STA Financial Institutions ROMANIA
Transelectrica S.A. Ba1 LT Corporate Family Ratings - Fgn Curr 20.4.16 STA Infrastructure & Project Finance
ROMANIA
38 MOODY’S INSIDE CEE 12 September 2017
Name LT Rating Rating Type Rating Date Outlook Market Segment Location
Romania, Government of Baa3 LT Issuer Rating - Fgn Curr 21.4.17 STA Sovereign & Supranational ROMANIA
Belgrade, City of Ba3 LT Issuer Rating - Fgn Curr 20.3.17 STA Sub-Sovereign SERBIA
Novi Sad, City of Ba3 LT Issuer Rating - Fgn Curr 20.3.17 STA Sub-Sovereign SERBIA
Valjevo, City of B1 LT Issuer Rating - Fgn Curr 20.3.17 STA Sub-Sovereign SERBIA
Serbia, Government of Ba3 LT Issuer Rating - Fgn Curr 17.3.17 STA Sovereign & Supranational SERBIA
Ceskoslovenska obchodna banka (Slovakia) Baa2 LT Bank Deposits - Fgn Curr 10.6.15 STA Financial Institutions SLOVAK REPUBLIC
LPS SR, s.p. A2 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
11.4.17 POS Corporates SLOVAK REPUBLIC
Spisska Nova Ves, City of Baa1 LT Issuer Rating (Domestic)/NSR LT Issuer Rating (Domestic)
10.4.17 POS Sub-Sovereign SLOVAK REPUBLIC
SPP-distribucia, a.s. Baa2 LT Issuer Rating - Dom Curr 22.5.15 STA Infrastructure & Project Finance
SLOVAK REPUBLIC
Tatra banka, a.s. Baa1 LT Bank Deposits - Fgn Curr 23.9.15 STA Financial Institutions SLOVAK REPUBLIC
Vseobecna uverova banka, a.s. A2 LT Bank Deposits - Fgn Curr 10.6.15 STA Financial Institutions SLOVAK REPUBLIC
Slovakia, Government of A2 LT Issuer Rating - Fgn Curr 7.4.17 POS Sovereign & Supranational SLOVAK REPUBLIC
UniCredit Bank Czech Republic and Slovakia - Mortgage Covered Bonds
Aa3 6.5.16 Structured Finance SLOVAK REPUBLIC
Abanka d.d. Ba1 LT Bank Deposits - Fgn Curr 21.6.17 STA Financial Institutions SLOVENIA
Holding Slovenske elektrarne d.o.o. Ba2 LT Corporate Family Ratings 21.12.16 STA Corporates SLOVENIA
Nova Kreditna banka Maribor d.d. Ba2 LT Bank Deposits - Fgn Curr 25.10.16 STA Financial Institutions SLOVENIA
Nova Ljubljanska banka d.d. Ba1 LT Bank Deposits - Fgn Curr 25.10.16 STA Financial Institutions SLOVENIA
Slovenia, Government of Baa3 LT Issuer Rating - Fgn Curr 16.9.16 POS Sovereign & Supranational SLOVENIA
Energa Finance AB (publ) Baa1 BACKED Senior Unsecured - Fgn Curr 9.2.17 STA Corporates SWEDEN
ORLEN Capital AB (publ) Baa2 BACKED Senior Unsecured - Fgn Curr 13.4.17 STA Corporates SWEDEN
Synthos Finance AB (publ) Ba2 BACKED Senior Unsecured - Fgn Curr 30.9.14 STA Corporates SWEDEN
MOODY'S CEE CONTACT LIST
39 MOODY’S INSIDE CEE 12 September 2017
Key Contacts Moody’s Investors Service EMEA Limited, Polish Branch Pl. Pilsudskiego 3 00-078 Warsaw Poland +48.22.449.01.59
Moody’s Investors Service EMEA Limited, Czech Branch Washingtonova 17 110 00 Prague 1 Czech Republic +420.2.2410.6422
Piotr Janczak General Manager - Poland Vice President - Head of Relationship Management – CEE Relationship Management, Commercial Group +48.22.449.01.59 [email protected]
Igor Ovcacik Country Manager - Czech Republic Vice President - Relationship Manager – CEE Relationship Management, Commercial Group +420.224.106.444 [email protected]
Anna Burel Vice President - Account Executive Relationship Management, Commercial Group Moody’s Investors Service Ltd +44.20.7772.5343 [email protected]
Milan Resimic Senior Associate Relationship Management, Commercial Group Moody’s Investors Service Ltd +44.20.7772.5638 [email protected]
Alex Cataldo Managing Director – EMEA Commercial Group EMEA Fundamental Relationship Management, Commercial Group Moody’s Investors Service Ltd +44.20.7772.5488 [email protected]
David Aldrich Associate Managing Director, Emerging Markets EMEA Fundamental Relationship Management, Commercial Group Moody’s Investors Service Ltd +44.20.7772.1743 [email protected]
40 MOODY’S INSIDE CEE 12 September 2017
Analytical Contacts
FINANCIAL INSTITUTIONS GROUP Arif Bekiroglu Asst Vice President - Analyst +4420-7772-1713 [email protected] Niclas Boheman Asst Vice President - Analyst +4420-7772-1643 [email protected] Armen Dallakyan Vice President - Senior Analyst +4420-7772-1688 [email protected] Bernhard Held Vice President - Senior Analyst +4969-7073-0973 [email protected] Helena Kingsley-Tomkins Asst Vice President - Analyst +4420-7772-1397 [email protected] Guillaume Lucien-Baugas Vice President - Senior Analyst +33-1-5330-3350 [email protected] Alexios Philippides Asst Vice President - Analyst +357-2569-3031 [email protected] Melina Skouridou Asst Vice President - Analyst +357-2569-3021 [email protected] Arif Bekiroglu Asst Vice President - Analyst +4420-7772-1713 [email protected] Niclas Boheman Asst Vice President - Analyst +4420-7772-1643 [email protected]
CORPORATES Ekaterina Botvinova Vice President - Senior Analyst +7-495-228-6054 [email protected] Philip Cope Analyst +4420-7772-5229 [email protected] Douglas Crawford Vice President - Senior Credit Officer +4420-7772-5215 [email protected] Gunjan Dixit Vice President - Senior Credit Officer +4420-7772-8628 [email protected] Frederic Duranson Analyst +4420-7772-1950 [email protected] Joanna Fic Vice President - Senior Credit Officer +4420-7772-5571 [email protected] Helen Francis Vice President - Senior Credit Officer +4420-7772-5422 [email protected] Martin Fujerik Vice President - Senior Analyst +4969-7073-0909 [email protected] Erica Gauto Flesch Asst Vice President - Analyst +4420-7772-1968 [email protected] Goetz Grossmann Asst Vice President - Analyst +4969-7073-0728 [email protected] Vincent Gusdorf Vice President - Senior Analyst +33-1-5330-1056 [email protected] Velina Karadzhova Analyst +4420-7772-5478 [email protected] Shruti Kulkarni Analyst +4420-7772-1388 [email protected] Ekaterina Lipatova Asst Vice President - Analyst +7-495-228-6090 [email protected] Gianmarco Migliavacca Vice President - Senior Credit Officer +4420-7772-5217 [email protected] Alejandro Nunez Vice President - Senior Analyst +4420-7772-1389 [email protected] Roberto Pozzi Vice President - Senior Credit Officer +4420-7772-1030 [email protected] Lorenzo Re Vice President - Senior Analyst +3902-9148-1123 [email protected] Emmanuel Savoye Asst Vice President - Analyst +4420-7772-1431 [email protected] Margaret Stevan Analyst +4420-7772-5576 [email protected] Stefanie Voelz Vice President - Senior Credit Officer +4420-7772-5555 [email protected] Carlos Winzer Senior Vice President +34-91-768-8238 [email protected]
REGIONAL AND LOCAL GOVERNMENTS Katerina Hanzlova Analyst +420-221 666-352 [email protected] Gjorgji Josifov Asst Vice President - Analyst +420-221-666-340 [email protected] Dagmar Urbankova Analyst +420-224-106-440 [email protected]
STRUCTURED FINANCE – COVERED BONDS Martin Lenhard Vice President – Senior Credit Officer +49-69-7073-0743 [email protected] Greg O'Reilly Vice President - Senior Analyst +34-91-768-8241 [email protected] Martin Rast Vice President – Senior Credit Officer +44-77-3091-0134 [email protected] Tomas Rodriguez-Vigil Analyst +34-91-7688-231 [email protected]
SOVEREIGN GROUP Rita Babihuga Nsanze Vice President - Senior Analyst +4420-7772-1718 [email protected] Sarah Carlson Senior Vice President +4420-7772-5348 [email protected] Heiko Peters Asst Vice President - Analyst +49-697-073-0799 [email protected] Daniela Re Fraschini Asst Vice President - Analyst +4420-7772-1063 [email protected] Evan Wohlmann Vice President - Senior Analyst +4420-7772-5567 [email protected]
41 MOODY’S INSIDE CEE 12 September 2017
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INSIDE CEE EDITORIAL BOARD
Piotr Janczak General Manager - Poland
Matthew Bridle Assistant Vice President – Research Writer
Milan Resimic Senior Associate – Relationship Management
David Aldrich Associate Managing Director –Emerging Markets