(Repeat for additional subscribers)
July 9 (The following statement was released by the rating agency)
Fitch Ratings says in a new report that
the ratings of public sector entities (PSEs) are primarily driven by their
strategic importance to the government, which is typically defined by the
sector's social role.
Fitch's PSE criteria focus on the extraordinary likelihood of support that a
government can provide to an entity in case of financial distress. Depending on
the linkages between the PSE and the state, Fitch will, in assigning a rating to
a PSE, either take a top-down ratings approach to the sponsor's rating or a
bottom-up ratings approach to the standalone credit profile of the PSE.
Public entities in key social sectors normally do not have a profit maximisation
role. In some cases they are recipients of government funding by way of
transfers and/or subsidies, capital injections, or the financing of capital
expenditure and are regulated. The aim of these PSEs is to provide an important
service and not to maximise returns.
In deciding whether or not a sector is strategic for the government, Fitch would
assess whether the services provided are a mandatory or a discretionary
responsibility (whether at the central government or the subnational level). If
it is a mandatory responsibility then it is more likely to be considered
strategic than if it is discretionary.
Fitch has identified four sectors which generally have strong strategic
importance in a country and are usually delivered on a not-for-profit basis.
These sectors are education, health care, public transport and social housing.
These sectors play a strong social role and, in many cases, are subsidised by
the government either directly by the provider of the service or indirectly by
the provision of benefits to the users of the services.
It should be noted that while a sector may be considered as strategically
important, it does not necessarily confer the same status on an individual PSE
within the same sector if there are alternative private sector players that can
provide the service. Also, if external funding is important for the development
of the sector, then it is more likely that the government would provide
extraordinary support, if necessary, to retain investor confidence.
The special report, entitled 'Rating Public Sector Entities - Strategic
Importance Central Among Principal Rating Factors", is available at
www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: Rating Public Sector Entities