(The following statement was released by the rating agency)
Oct 02 - Overview
-- We equalize the ratings on SAGESS , which maintains and manages a large portion of France's strategic oil reserves, with those on France.
-- We consider SAGESS as a government-related entity (GRE) and believe there is an "almost certain" likelihood that the French government would provide timely and sufficient extraordinary support to SAGESS in the event of financial distress.
-- We are affirming our 'AA+/A-1+' issuer credit ratings on SAGESS.
-- The negative outlook mirrors that on France and reflects our expectation that SAGESS will retain its integral link with and critical role to the French state.
On Oct. 2, 2012, Standard & Poor's Ratings Services affirmed its 'AA+' long-term and 'A-1+' short-term issuer credit ratings on France-based Societe Anonyme de Gestion de Stocks de Securite (SAGESS). The outlook is negative.
We equalize the ratings on SAGESS, a not-for-profit company which maintains and manages a substantial part of France's strategic oil reserves, with the ratings on France (unsolicited, AA+/Negative/A-1+). This reflects our view that there is an "almost certain" likelihood that the French government would provide timely and sufficient extraordinary support to SAGESS in the event of financial distress.
We consider SAGESS to be a government-related entity (GRE). Under our GRE criteria, we base our ratings approach on SAGESS':
-- "Critical" role in fulfilling France's legal obligation to stockpile oil under EU and International Energy Agency (IEA) requirements. In our opinion, SAGESS' strategic mission ensures it receives strong state support; and
-- "Integral" link with the French state. SAGESS is integrated into the government's energy policy and subject to close state supervision and control.
SAGESS' role is intertwined with that of the Comite Professionnel des Stocks Strategiques Petroliers (CPSSP; not rated). SAGESS' role is to stockpile oil, and carry out related operating and administrative management tasks, on behalf of CPSSP. CPSSP charges oil operators for SAGESS' services. These fees are SAGESS' sole recurrent revenue source.
We understand that SAGESS will be recognized by year-end 2012 as France's single central stockholding entity (CSE) under the 2009 EU directive on oil stockpiling obligations. If the French government does not designate SAGESS as France's CSE, which could lead to a change in its mission, we could review the ratings on SAGESS.
The 2009 EU directive imposed a progressive increase in stockpiling in France, in two steps (July 2011 and July 2012). But falling oil consumption partly reduced the needs in oil stock purchase, as well as SAGESS' related financial needs. We expect new funding needs to mostly stem from private operators increasingly delegating their stockpiling obligation to SAGESS--a continuing trend over recent years--and from SAGESS' refinancing needs.
We believe SAGESS' legal framework ensures full cost recovery. Reflecting its not-for-profit mission, SAGESS' net income has typically been marginally positive for the past decade, and we expect it to remain so. We understand that SAGESS will have to pay by mid-December 2012 a new, one-off tax on oil stocks, of about EUR300 million-EUR350 million, which will be funded from an increase in fees paid by oil operators spread over several months. Though this is neutral from an accounting perspective, we understand that SAGESS will have to prepay this tax and will be fully refunded (including for financial costs incurred) over the first nine months of 2013.
We view SAGESS' liquidity as adequate. As of Sept. 14, 2012, SAGESS had EUR410 million in outstanding commercial paper (CP) debt under its EUR1.4 billion program supported by EUR240 million of confirmed dedicated backup lines and EUR460 million of bilateral backup lines with banks. We understand SAGESS is committed to demonstrating 100% coverage of its outstanding CP at any time through its available facilities.
In case of need, including in periods of severe financial market disruptions that could create refinancing risks for SAGESS on its outstanding bonds or CP, we understand that SAGESS would be entitled to sell up to 10% of its stocks (i.e., around EUR800 million at current market price) after pre-approval from the state. We would expect state authorization to be swift (less than a day), as adequate mechanisms and procedures are currently in place, though these have never been tested so far.
We also consider that, in case of need, SAGESS could access the emergency funding of the French Treasury ("Agence France Tresor"), which could use its debt amortization fund ("Caisse de la dette publique") to buy SAGESS' bonds or CP issues. We consider this allows for prompt and ample state support to SAGESS in the event of financial distress.
The negative outlook mirrors that on France and reflects our expectation that SAGESS will retain its "critical" role to and "integral" link with the French state. We base our view on France's strong dependence on imported oil and its international obligations with regard to strategic oil reserve stockpiling. We therefore expect the ratings on SAGESS to move in line with those on France.
Related Criteria And Research
-- Sovereigns And Equalized GREs Commercial Paper Rating Methodology, March 29, 2012
-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
Ratings List Ratings Affirmed
Societe Anonyme de Gestion de Stocks de Securite
Issuer Credit Rating AA+/Negative/A-1+ Senior Unsecured AA+ Commercial Paper A-1+ ((Bangalore Ratings Team, Hotline: +91 80 4135 5898, Bhanu.firstname.lastname@example.org, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.email@example.com))