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TEXT-S&P summary: Societe Anonyme de Gestion de Stocks de Securite
(The following statement was released by the rating agency)
Oct 19 -
Summary analysis -- Societe Anonyme de Gestion de Stocks de Securit 19-Oct-2012
CREDIT RATING: AA+/Negative/A-1+ Country: France
Primary SIC: Special Purpose
Credit Rating History:
Local currency Foreign currency
17-Jan-2012 AA+/A-1+ AA+/A-1+
10-Jan-2001 AAA/A-1+ AAA/A-1+
We equalize the ratings on SAGESS, a not-for-profit company which maintains and manages a substantial part of France's strategic oil reserves, with the ratings on the Republic of France (unsolicited, AA+/Negative/A-1+). This reflects our view that there is an "almost certain" likelihood that the French government would provide timely and sufficient extraordinary support to SAGESS in the event of financial distress.
We consider SAGESS to be a government-related entity (GRE). Under our GRE criteria, we base our ratings approach on SAGESS':
-- "Critical" role in fulfilling France's legal obligation to stockpile oil under EU and International Energy Agency (IEA) requirements. In our opinion, SAGESS' strategic mission ensures it receives strong state support; and
-- "Integral" link with the French state. SAGESS is integrated into the government's energy policy and subject to close state supervision and control.
SAGESS' role is intertwined with that of the Comite Professionnel des Stocks Strategiques Petroliers (CPSSP; not rated). SAGESS' role is to stockpile oil, and carry out related operating and administrative management tasks, on behalf of CPSSP. CPSSP charges oil operators for SAGESS' services. These fees are SAGESS' sole recurrent revenue source.
We understand that SAGESS will be recognized by year-end 2012 as France's single central stockholding entity (CSE) under the 2009 EU directive on oil stockpiling obligations. If the French government does not designate SAGESS as France's CSE, which could lead to a change in its mission, we could review the ratings on SAGESS.
The 2009 EU directive imposed a progressive increase in stockpiling in France, in two steps (July 2011 and July 2012). But falling oil consumption partly reduced the needs in oil stocks purchases, as well as SAGESS' related financial needs. We expect new funding needs to mostly stem from private operators increasingly delegating their stockpiling obligation to SAGESS--a continuing trend over recent years--and from SAGESS' refinancing needs.
We believe SAGESS' legal framework ensures full cost recovery. Reflecting its not-for-profit mission, SAGESS' net income has typically been marginally positive for a decade, and we expect it to remain so. We understand that SAGESS will have to pay by mid-December 2012 a new, one-off tax on oil stocks, of EUR300 million-EUR350 million, which it will fund from an increase in fees paid by oil operators spread over several months. Though this is neutral from an accounting prospective, we understand that SAGESS will have to prepay this tax and will be fully refunded (including for financial costs incurred) over the first nine months of 2013.
We view SAGESS' liquidity as adequate. As of Oct. 16, 2012, SAGESS had EUR670 million in outstanding commercial paper (CP) debt under its EUR1.4 billion program supported by EUR240 million of confirmed dedicated backup lines and EUR460 million of bilateral backup lines with banks. We understand SAGESS is committed to demonstrating 100% coverage of its outstanding CP at any time through its available facilities.
In case of need, including periods of severe financial market disruptions inducing potential refinancing risks for SAGESS on its outstanding bonds or CP, we understand that SAGESS would be entitled to sell up to 10% of its stocks (i.e. around EUR800 million at current market price) after pre-approval from the state. We would expect such state authorization to be swift (less than a day), as adequate mechanisms and procedures are currently in place, though these have never been tested.
We also consider that in case of need, SAGESS could have access to emergency funding from the French Treasury ("Agence France Tresor") using its debt amortization fund ("Caisse de la dette publique") to buy SAGESS' bonds or CP issues. We consider this allows for prompt and ample state support to SAGESS in the event of financial distress.
The negative outlook mirrors that of the Republic of France and reflects our expectation that SAGESS will retain its "critical" role to and "integral" link with the French state. We base our view on France's strong dependence on imported oil and its international obligations with regard to strategic oil reserve stockpiling. We therefore expect the ratings on SAGESS to move in line with those on France.
Related Criteria And Research
-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
-- Sovereigns And Equalized GREs Commercial Paper Rating Methodology, March 29, 2012
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