DBRS Morningstar Confirms Parpública at BBB (high), Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed Parpública – Participações Públicas (SGPS – Sociedade Gestora de Participações Sociais), S.A’s (Parpública) Long-Term Issuer Rating at BBB (high) and its Short-Term Issuer Rating at R-1 (low). The trend on all ratings is Stable.

KEY RATING CONSIDERATIONS

Parpública’s ratings are aligned with that of Portugal (BBB (high), Stable) in accordance with the Global Methodology for Government Related Entities. Parpública’s ratings are aligned with that of its sovereign given: (1) the entity’s public ownership: Parpública is 100% state-owned and has a public policy mandate, acting on behalf of the Portuguese State in managing and privatising state-owned assets; (2) Portugal’s legal obligation to honour Parpública’s liabilities, as stipulated in the Decree-Law No. 209/2000 and the Portuguese Code of Commercial Companies; and (3) the central government’s ability and willingness to provide timely financial support to Parpública as exemplified by the government’s support to the entity in the past.

The negative impact of the Coronavirus Disease (COVID-19) on the national economy, and the considerable uncertainty concerning the timeframe for a normalisation of the economic environment while they represent challenges, do not affect at the moment DBRS Morningstar's assessment of Parpublica's credit profile.

RATING DRIVERS
Any upgrade of the Republic of Portugal’s ratings would likely lead to an upgrade of Parpública’s ratings.

Parpública’s ratings could be downgraded if one or a combination of the following occurs (1) the ratings on the Republic of Portugal are downgraded; (2) our assessment on the likelihood that the Republic of Portugal will provide timely financial support weakens; or (3) the Portuguese State ceases to be the sole shareholder of Parpública.

RATING RATIONALE

The Legal Commitment from the Republic of Portugal Drives Parpública’s Ratings

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, DBRS Morningstar believes that 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, DBRS Morningstar considers that this does not call into question the commitment of the Portuguese State to honour Parpública’s debt obligations in a timely manner.

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 EUR 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).

Parpública is 100% owned by the Republic of Portugal. Its function is to manage the central government’s real estate assets and equity holdings, provide management support and technical expertise and coordinate privatisation processes. The entity’s financials and overall strategy are ultimately set by the central government which appoints all of Parpública’s board members and oversees its operations through the Minister of Finance.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 euros (EUR) unless otherwise noted.

The principal methodology is the Global Methodology for Government Related Entities (March 10, 2020) https://www.dbrsmorningstar.com/research/357803/global-methodology-for-government-related-entities.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The sources of information used for this rating include Parpública annual financial statements (2016-19), semi-annual financial statements (2018-19), Parpública portfolio of participations (June 2020), Ministry of Finance of the Republic of Portugal, IGCP for all legal documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar 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 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/367271

Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.

Lead Analyst: Nicolas Fintzel, Vice President, Global Sovereign Ratings
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer, Global FIG and Sovereign Ratings
Initial Rating Date: May 22, 2015
Last Rating Date: October 11, 2019

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