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April 17 (The following statement was released by the rating agency)
Fitch Ratings has assigned EPIC BPI-Group Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'AA+' with a Stable Outlook, and its Short-term foreign currency IDR of 'F1+'.
Fitch has also assigned Bpifrance Financement EUR4bn certificate of deposit programme and EUR20bn euro medium term notes programme Long-term ratings of 'AA+' and Short-term of 'F1+'. The bonds issued under these programmes benefit from an unconditional and irrevocable first-call guarantee from EPIC BPI-Group. Fitch rates the holding company EPIC BPI-Group, but not the consolidated BPI-Group or its subsidiaries (including Bpifrance Financement) represented by Bpifrance.
The IDRs of EPIC BPI-Group (EPIC) are underpinned by a very strong probability of support from the French State (AA+/Stable/F1+), given its status as a public agency. The ratings are aligned with those of the French State due to expected very strong support, in case of need, strong oversight from the state government and its strategic role in government policy concerning SMEs. The Stable Outlook reflects that of France.
KEY RATING DRIVERS
Public Sector Entity: Fitch classifies EPIC BPI-Group as a dependent public sector entity (PSE) under its rating of public sector entities criteria, due to its legal status, tight control by and integration with the state and, to a lesser extent, its strategic importance. As a result the ratings of EPIC BPI-Group are equalised with France's ratings.
Strong State Support: Fitch considers that EPIC would benefit from very strong state support in case of need. Although the French government has no legal obligation to prevent a default, Fitch assumes that it is highly motivated to provide support and that it has the legal and financial means to enable EPIC to meet debt-service obligations on time. By virtue of its status, EPIC's assets and liabilities cannot be liquidated or transferred to entities other than the French State.
Tight Supervision by State: Owned 100% by the state, the French government exerts strong administrative, legal and financial oversight over Bpifrance, and its missions are defined by the French government. As part of public policy, Bpifrance's commitments are followed by Parliament through annual performance reports.
Strategic Importance: Bpifrance is a strategic tool for French economic policy whose primary activities are SME co-lending with commercial banks with the aim to finance and stimulate small and medium businesses' growth. At end-2012, Bpifrance benefited from a key position in private equity in France, financing 57 % of SMEs directly or with private partner funds, which represented 29 % of total investments in SMEs.
Resilient Financial Performance: Bpifrance's net banking income totalled EUR874m in 2013 was nearly evenly split between the financing and equity investment businesses. Underpinned by low fixed costs, Bpifrance posted a sound cost/income ratio for 2013 and Fitch expects profitability to remain acceptable, partly driven by an increase of its activity (with the objective to grant EUR13.1bn of new loans and innovation aids in 2017).
Strong, Diversified Funding: Regulated as a bank, Bpifrance Financement's refinancing is based on a diversified source of funding. Fitch considers that Bpifrance Financement's refinancing risk is fairly low as only 10 % are related to short-term instruments.
Sound Liquidity Position: Bpifrance has a solid and prudent liquidity profile supported by a large securities portfolio and cash position with a total potential amount of EUR20.9bn available at end-2013. This translated into a solid liquidity coverage ratio (LCR) under Basel III regulations (575%). Fitch believes the French State would provide liquidity support to EPIC BPI-Group, in case of need.
Diversified Risk Assets: The breakdown of exposures by product and by sector is diversified both in exposure and number of counterparties. Fitch considers that Bpifrance has a strict policy on large exposures, thereby limiting high individual exposure and favouring portfolio diversification.
EPIC BPI-Group's ratings are credit linked to the sovereign. A positive or negative rating action on the sovereign would result in a similar rating action on the issuer.
Changes to EPIC BPI-Group's legal status that weaken potential support from the state could also lead to a downgrade.
A movement in the ratings of EPIC BPI-Group would affect the ratings of guaranteed bonds issued by Bpifrance Financement.