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Fitch Affirms Agence Francaise de Developpement at 'AA'; Outlook Stable
September 12, 2017 / 3:52 PM / 8 days ago

Fitch Affirms Agence Francaise de Developpement at 'AA'; Outlook Stable

(The following statement was released by the rating agency) PARIS, September 12 (Fitch) Fitch Ratings has affirmed Agence Francaise de Developpement's (AFD) Long-Term Issuer Default Rating (IDR) at 'AA' with a Stable Outlook, and Short-Term IDR at 'F1+'. Fitch has also affirmed AFD's EUR30 billion EMTN programme at 'AA' and 'F1+' and EUR2 billion negotiable European commercial paper (NEU CP) programme at 'F1+'. Senior unsecured notes have also been affirmed at 'AA'. Under its rating of public-sector entities criteria, Fitch classifies AFD as a credit-linked entity to the French state (AA/Stable/F1+), and equalises AFD's ratings with those of the sovereign. In Fitch's view, AFD would benefit from very strong state support in case of need, due to its Etablissement Public Industriel et Commercial (EPIC) status, its strategic role in governmental policies, thorough oversight by the state and, to a lesser extent, integration with the state. KEY RATING DRIVERS Legal Status (Stronger): The EPIC status reflects the ultimate responsibility of the French state for AFD's solvency and liquidity. As an EPIC, AFD cannot be liquidated or go bankrupt. It can only be dissolved by law, which would entail an automatic unconditional transfer of all its assets and liabilities to the state, or to another public entity designated by the state. It is also allowed to access state emergency financial support mechanisms such as emergency loans or the purchase of AFD's long-term bonds or short-term notes by the French treasury. Fitch assumes that these mechanisms would be activated in a timely manner in case of need. In July 2017, ECB approved a request from AFD to modify its status under French law from credit institution to "societe de financement". Fitch notes that this change does not affect the EPIC status of the AFD. Strategic Importance (Stronger): AFD implements one of the state's core missions as it is the main agent of development aid policy, which is an important foreign policy tool in France. It finances development projects in designated foreign countries, within the policy framework defined by the French government, and also funds development projects and local governments in French overseas territories. The French government also relies on AFD to implement the country's sustainable development goals set within the 2030 Agenda of the United Nations for Sustainable Development. AFD has several subsidiaries, most importantly Proparco, a limited liability development finance institution 64.95%-owned by AFD and is dedicated to funding private investments abroad. AFD and its subsidiaries are consolidated into the AFD Group. The debt rated by Fitch is at the EPIC level. Fitch does not expect the recent change in French government to affect AFD's strategic importance to the French state. Control (Stronger): The French state exercises close oversight over AFD. This is ensured by significant representation of the state on AFD's Board of Directors and the nomination of the Chairman and Managing Director by state decree. Ongoing audits are carried out by the supervising ministries (economy, cooperation, and overseas territories) and AFD is also subject to the ultimate control of the state's supervisory bodies (national audit court, state's general inspectors). Integration (Midrange): AFD is financially autonomous and has control over its own assets and budget. Since AFD is a financial institution and its debt is not consolidated in France's public debt, except guarantees granted by the state to AFD (EUR1 billion at end-2016). AFD has distributed dividends to the state since 2003 (2016: EUR36 million). AFD Group loans were up 9.6% in 2016, following an 11.9% increase in 2015. In line with the French state's commitment to develop AFD's activities, we expect loans will continue to grow in the coming years. According to AFD's business plan, the group's annual commitments should reach EUR12.5 billion in 2020, up from EUR9.4 billion in 2016. In 2016, AFD Group profit before tax totalled EUR292 million, up 46.4% from 2015. Net banking income increased 21.9% in 2016 to EUR724 million, which was mainly attributable to a sharp increase in loans' fair value. The cost-income ratio remained high at 47.4% in 2016, reflecting the cost of the agency's network and the importance of high-cost advisory services to borrowers. In 2016, EUR2.4 billion of former Tier 2 capital was converted by the French state into CET1 instruments, which resulted in a sharp improvement of AFD Group's T1 and CET1 capital ratios. This should ensure AFD the means to implement its ambitious business plan while maintaining adequate capital ratios in the coming years. At end-2016, regulatory capital ratios were significantly above their minimum regulatory levels. AFD faces low refinancing risk due to its fairly large capital base, its long-funding structure, and the predictability of its loan disbursement schedule. Funding relies on a EUR2 billion NEU CP programme, a EUR2 billion medium-term programme and on a EUR40 billion EMTN programme. RATING SENSITIVITIES Changes to France's sovereign rating would be mirrored in AFD's ratings. An adverse change to AFD's legal status, with weaker state support, could also lead to negative rating action. Contact: Primary Analyst Pierre Charpentier Analyst +33 1 44 29 91 45 Fitch France S.A.S 60, rue de Monceau 75008 Paris Secondary Analyst Christophe Parisot Managing Director +33 1 44 29 91 34 Committee Chair 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; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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