DBRS Confirms ‘BBB (low)’ Rating to Parpública

DBRS Ratings Limited has confirmed the long-term issuer rating of BBB (low) and the short-term issuer rating of R-2 (middle) for Parpública – Participações Públicas (SGPS - Sociedade Gestora de Participações Sociais), S.A. The trends on both ratings are Stable. The ratings are aligned with the Republic of Portugal’s long-term local currency issuer rating of BBB (low) with a Stable trend and short-term local currency issuer rating of R-2 (middle) with a Stable trend. The conditions to apply the sovereign rating to Parpública have been met, in accordance with the criteria The Link between Sovereign Ratings and Government Related Entities.

DBRS applies the sovereign ratings to Parpública because: (1) Parpública is a 100% state-owned company that acts as an agent of the Portuguese State for public policy purposes, specifically managing and privatizing state-owned assets; (2) the Republic of Portugal is legally obligated to honour Parpública’s liabilities, as stipulated in the Decree-Law No. 209/2000 and the Portuguese Code of Commercial Companies; and (3) the government has demonstrated the ability and willingness to provide timely financial support to Parpública in the past.

The ratings could be downgraded if the ratings on the Republic of Portugal are downgraded, or if our assessment on the likelihood that the Republic of Portugal will provide timely financial support weakens. The ratings could also come under downward pressure if the Portuguese State ceases to be the sole shareholder of Parpública. Alternatively, an upgrade of the Republic of Portugal’s ratings would likely lead to an upgrade of Parpública’s ratings.

Parpública is 100% owned by the Republic of Portugal. Its function is to coordinate privatization processes, manage the State’s real estate assets and equity holdings, and provide management support and technical services. The State exercises financial and strategic control of Parpública. The Minister of Finance appoints all of Parpública’s board members and supervises its operations.

Parpública is subject to the legal regulations on companies, as approved by the Decree-Law No. 209/2000 of 2 September (the “Decree-Law of Incorporation of Parpública”). In particular, this legislation[1] stipulates that the Portuguese Code of Commercial Companies applies to Parpública in terms of the “state equivalence” status, which also applies to autonomous regions, local authorities and the Institute of Social Security[2]. Moreover, the Decree-Law[*3] stipulates the rights of the Portuguese State as a shareholder, executed by the Ministry of Finance, and indicates that the Commercial Companies Code also applies to the relation between the Portuguese State and Parpública. In this respect, the Republic of Portugal, as the sole shareholder of Parpública, has an irrevocable and unconditional obligation to honour Parpública’s liabilities.

The Companies Code[*4] specifies the legal responsibility of the parent company for the obligations incurred by the wholly-owned subsidiary, before and after the constitution of the total control relationship and while such relationship remains in place. Therefore, although the Portuguese government has not issued explicit guarantees for Parpública’s debt obligations, the Portuguese State is legally deemed responsible for all Parpública’s liabilities, for as long as the Republic of Portugal remains the sole shareholder. Payment from the State can only be claimed 30 days after a missed payment, according to article 501 of the Companies Code. However, this does not call into question the commitment of the Portuguese State to honour Parpública’s debt obligations.

The willingness of the Portuguese State to provide financial support to Parpública has also been evident in the past. Parpública’s commercial paper programme benefited from an explicit guarantee for €620 million in 2012, and the government diverted a syndicated loan to Parpública in 2013. Parpública’s close ties with the Republic of Portugal are reinforced by the incorporation of Parpública within the general government perimeter as of 1st January 2015. This followed the adoption of the new European System of Accounts (ESA 2010) in 2014, together with new rules for sector classification of public entities by the national statistics office (Statistics Portugal).

Notes:
[1] - Article 3 of the Decree-Law No. 209/2000 of 2 September [2] - Article 545 of the Portuguese Code of Commercial Companies
[3] - Article 4 of the Decree-Law No. 209/2000 of 2 September [4] - Articles 501 to 503 of the Portuguese Code of Commercial Companies

All figures are in euro (EUR) unless otherwise noted.

The principal applicable criteria is The Link between Sovereign Ratings and Government Related Entities, and the principal applicable methodology is Rating Sovereign Governments, which can be found on the DBRS website under Methodologies. The principal applicable rating policies are Commercial Paper and Short-Term Debt, and Short-Term and Long-Term Rating Relationships, which can be found on our website under Rating Scales. These can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

The sources of information used for this rating include Parpública, Ministry of Finance of the Republic of Portugal, IGCP and Statistics Portugal. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Adriana Alvarado, Assistant Vice President
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer
Initial Rating Date: 22 May 2015
Last Rating Date: 22 May 2015

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