Fitch: Rated Portuguese Corps Have Limited Exposure to BES Risk

Tue Jul 15, 2014 10:28am EDT

(The following statement was released by the rating agency) LONDON, July 15 (Fitch) Fitch-rated Portuguese corporates are unlikely to face significantly higher risk from the troubles at the Espirito Santo Group, which includes Banco Espirito Santo (BES), due to their limited direct exposure to the group and diversified funding bases, Fitch Ratings says. Portugal Telecom (PT) is the only corporate we rate with a large direct exposure to the group through its EUR897m holding of commercial paper from Rio Forte Investments. While we consider such a large short-term loan to a single counterparty to be negative for PT's credit profile, there is also a strategic partnership and cross shareholding between the group and PT. Repayment of the majority of the principal (EUR847m) is due today with the balance on Thursday. PT's outstanding bonds are already separately guaranteed by Brazil's Oi as part of their planned merger. A failure to receive repayment on the commercial paper would be viewed negatively for PT's rating profile and, while we do not believe the merger has been put at risk, there is the potential for the terms of the deal to change. We will review the credit impact if this appears likely. Among other Portuguese corporates, Energias de Portugal (EDP) has a relatively small exposure to Banco Espirito Santo through short-term deposits, which may be withdrawn on the same day. EDP had total cash and cash equivalents at end-1Q14 of EUR1.7bn. It has no exposure to commercial paper or any other debt instrument issued by any Espirito Santo Group entity. We believe EDP has a well-diversified funding base, with 60% of debt issued in capital markets and a good spread of bank loans among domestic and international banks. Banco Espirito Santo participated in the EUR3.15bn five-year revolving credit facility EDP signed last June, but it is currently fully undrawn and EDP's liquidity position is sufficient to cover its refinancing needs until the end of 2016. Redes Energeticas Nacionais does not have any deposits with BES and does not purchase other corporate's commercial paper. The group has taken steps to diversify its funding over the last few years and at 1Q14 only 5% of its funding was from bank loans, including non-Portuguese banks. Its gross debt exposure to Portuguese banks was around 2% at the end of June. Brisa Concessao Rodoviaria (BCR) has a limited exposure to Portuguese banks as it largely relies on capital markets to cover its predominantly bullet debt maturities. At end- June, its liquidity position comprised around EUR470m cash held with highly-rated international banks and EUR320m of committed credit lines, partly extended by Portuguese banks. A scenario of increasing financial pressure on domestic banks might make it more difficult to roll over a share of these lines, however, they are excluded from the liquidity measure Fitch uses in its analysis. BCR has already pre-funded its 2014-2015 debt maturities and is likely to be pro-active in covering its large bullet bond of EUR600m due in December 2016 sufficiently in advance. Contact: Michael Dunning Managing Director Corporates +44 20 3530 1178 Fitch Ratings Limited 30 North Colonnade London E14 5GN Damien Chew Senior Director Corporates +44 20 3530 1424 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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