DBRS Morningstar Upgrades Parpública to “A”, Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) upgraded Parpública – Participações Públicas (SGPS – Sociedade Gestora de Participações Sociais), S.A’s (Parpública) Long-Term Issuer Rating to “A” from A (low). At the same time, DBRS Morningstar confirmed Parpública’s Short-Term Issuer Rating at R-1 (low). The trends on all ratings remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The Long-Term Rating upgrade reflects the upgrade on the Long-Term Ratings of the Republic of Portugal on the 21 July 2023. DBRS Morningstar considers that Parpública benefits from explicit support arrangements from the Portuguese government. Parpública’s ratings are aligned with those of the Republic of Portugal ("A", Stable). Parpública’s ratings are underpinned by: (1) the entity’s full 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; (3) the repayment of Parpública’s debt not covered by its own resources through the direct funding from the General Directorate of Treasury and Finance (DGTF) of the Ministry of Finance given that Parpública has not been allowed to borrow since 1st January 2015; and (4) 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. DBRS Morningstar views the Portuguese government’s commitment towards Parpública as credible, thanks to the strong institutional environment in Portugal.

CREDIT RATING DRIVERS
Parpública’s ratings could be upgraded if Portugal's ratings are upgraded.

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.

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

Parpública is a holding company 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 relationship between the Portuguese State and Parpública. In this respect, DBRS Morningstar takes the view 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 of 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.

A Proven Track-Record of State Support

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). As a result of its classification in the general government accounts, Parpública is no longer authorised by the government to borrow from capital markets. When own resources are insufficient, Parpública’s financing needs are fully covered by the DGTF, which reduces uncertainty over the sources of financing. This was for example the case in 2021 for EUR 633 million which covered a EUR 600 million maturing bond and EUR 33 million of interest related to the above-mentioned bond as well as the bond maturing in 2026. Nevertheless, in 2022, the EUR 10.5 million of interest paid by Parpública were covered by its own cash and DBRS Morningstar understands this is expected to be again the case in 2023.

Parpública is under Central Government Supervision

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 of Directors' members as the latter are elected by the central government's representatives at Parpública's General Meeting. The central government fully oversees Parpública's operations through the Minister of Finance.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Rating actions on Portugal are likely to have an impact on this rating. ESG factors and their effect on the credit analysis of Portugal are discussed separately at https://www.dbrsmorningstar.com/issuers/17486.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

RATING COMMITTEE SUMMARY

The main points discussed during the Rating Committee include the relationship between the Portuguese central government and Parpública, Parpública's 2022 operational activity and Parpública's 2022 financial performance.

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 unless otherwise noted.

The principal methodology is the Global Methodology for Rating Government Related Entities (28 February 2023) https://www.dbrsmorningstar.com/research/410361/global-methodology-for-rating-government-related-entities. In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The sources of information used for these credit ratings include the presentation and other analytical information provided by Parpública, Parpública’s 2022 financial report and 2022 sustainability report, Parpública’s statutes, 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 these credit ratings to be of satisfactory quality.

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and credit 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: https://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/417847.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mehdi Fadli, Senior Vice President, Sovereign Credit Ratings
Rating Committee Chair: Nichola James, Managing Director, Sovereign Credit Ratings
Initial Rating Date: May 22, 2015
Last Rating Date: September 2, 2022

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