Fitch Affirms SNI at 'AA-', Outlook Stable

Fri Jul 11, 2014 11:00am EDT

(The following statement was released by the rating agency) PARIS/FRANKFURT, July 11 (Fitch) Fitch Ratings has affirmed Societe Nationale Immobiliere's (SNI) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AA-' and Short-term foreign currency IDR at 'F1+'. The Outlook is Stable. Fitch rates only SNI's consolidated division, which focuses on intermediate housing but excludes the pure social housing division including social housing entities (SHEs). The consolidated division and the social housing division represent 30% and 70 %, respectively, of SNI group's total stock. KEY RATING DRIVERS Fitch uses a top-down approach under its public-sector entity criteria, notching SNI's ratings two levels down from those of its owner, Caisse des Depots et Consignations (CDC; AA+/Stable/F1+). SNI's ratings reflect CDC's ownership, its strategic and financial integration with CDC and its key role in the supply of rented social housing. The rating differential takes into account that SNI's intermediate housing activity does not benefit from the same institutional support as does social housing activity. SNI's entity is a semi-public company that is 99.99% controlled by CDC. Fitch believes that financial and strategic links between SNI and CDC are tight. Every year, a letter is addressed to SNI by CDC's Director General defining the policy guidelines on strategic and financial objectives to be achieved. Social housing developments run by SNI group are part of CDC's medium-term strategic plan. SNI is subject to a tight control by CDC through a governance model, which was strengthened in 2013 with the implementation of CDC's prudential model. This involves detailed reporting to CDC on a quarterly basis of debt and liquidity. In term of governance, most of the members of SNI's supervisory board are currently CDC's representatives. As a shareholder CDC receives dividend from SNI. As in 2009 under the national economic stimulus programme CDC has waived the payment of dividends for next few years and reduced the distribution rate thereafter. Under SNI's new programme of construction of intermediate housing units, CDC will waive EUR70m of dividends for 2014. Fitch believes that in case of need, CDC would be able to provide SNI with further support to the assistance it has given so far. As general interest housing subsidiary of CDC, SNI is France's largest social landlord, managing a portfolio of about 271,000 units providing homes for about one million individuals. Although intermediate housing - SNI's main activity - does not benefit from the same institutional support as social housing, SNI is tightly bound into the broader public sector, as most of its intermediate housing units are rented through housing reservation agreements or to the State. At end-2013, SNI's consolidated division continued to post a sound positive net result at EUR139.7m with the return on equity remaining strong at 11.1%. About 70% of SNI's housing stocks are related to the public sector, ensuring predictable cash flow. Fitch expects SNI's consolidated division net result and cash flow would remain comfortable at EUR80m and EUR203m, respectively, in 2020. At end-2013, SNI's consolidated division reported EUR3.5bn of debt, yielding an elevated gearing of 2x and debt/equity ratio at 243%. This level of debt is partly offset by a loan-to-value of 43% at end-2013. In the medium term, SNI expects to observe the gearing as set out in the financial objective by CDC, with net debt of EUR2.6bn, RATING SENSITIVITIES A rating action on CDC would lead to a similar action on SNI. A weakening of the state's institutional and financial support to the housing sector may result in negative rating action, although Fitch considers that the risk of a decline in state's support is more limited for intermediary social housing than for the housing sector in general. Contact: Primary Analyst Arnaud Dura Associate Director +33 1 44 29 91 79 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Tax-Supported Rating Criteria", dated August 2012, and "Rating of Public Sector Entities - Outside the United States" dated March 2014, are available on www.fitchratings.com. 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