PAPEETE, 15 novembre 2014 - L'agence de notation financière Standard & Poor's confirme ce vendredi l'évaluation BB+ de la Polynésie française, avec des perspectives positives à long terme .
L'évaluation du Pays a été recalcifié de BB+ avec perspectives stables en BB+ avec perspectives positives en décembre 2013 et se maintient depuis à ce grade. La notation financière du Pays n’avait cessé de se dégrader depuis 2000, passant de "placement de qualité moyenne supérieure (A-)" à "placement spéculatif (BB+)" onze ans plus tard, avec tout ce que cette dégradation engendre sur le coût de l’argent prêté à la collectivité.
La collectivité poursuit depuis plusieurs mois l'objectif d'une évaluation financière à BBB- qui la sortirait du groupe des placements spéculatifs en permettant une amélioration substantielle de ses capacités d’emprunt avec un accès facilité sur le marché obligataire.
OVERVIEW
We believe that French Polynesia's stand-alone liquidity is gradually improving on the back of better budgetary performance.
We also consider that French Polynesia has resumed normal access to external funding from commercial banks and financial markets.
We are affirming our 'BB+' long-term rating on French Polynesia.
The positive outlook reflects our view of a one-in-three likelihood that French Polynesia's economy will stabilize, thereby further strengthening both its budgetary performance and its liquidity.
On Nov. 14, 2014, Standard & Poor's Ratings Services affirmed its 'BB+' long-term issuer credit rating on the Overseas Country of French Polynesia. The outlook remains positive.
RATIONALE
The 'BB+' rating, one notch below investment grade, is mainly supported by French Polynesia's strong budgetary performance. In addition, we factor in our expectation that the operating margin will improve markedly and our view of French Polynesia's evolving but balanced institutional framework and moderate debt burden. We assess French Polynesia's budgetary flexibility as average, balancing its limited expenditure flexibility with high tax autonomy.
The rating continues to reflect our view of French Polynesia's less-than-adequate, albeit improving liquidity, weak financial management, very high contingent liabilities, and its weak economy. We project limited growth prospects for French Polynesia over the next couple of years and estimate its GDP per capita in 2013 at a moderate €15,888 by international standards.
The rating incorporates our 'bb+' assessment of French Polynesia's stand-alone credit profile (SACP).
Over the last decade, French Polynesia's budgetary performance and liquidity deteriorated sharply, owing to persistent political instability, weak budgetary management, and economic recession. Its operating balance dropped to a very low negative 5.1% of operating revenues in 2010 after GDP growth fell sharply by 4.2% in 2009. The operating balance subsequently grew gradually to positive 1.3% in 2011 and 2.5% in 2012 before jumping to 5.8% in 2013, mainly thanks to the first effects of the tax reform enacted in July 2013 and to the one-time underfinancing of the social solidarity fund. Excluding this nonrecurring item, the 2013 operating balance would have been stable compared with 2012's.
French Polynesia's severe liquidity tensions in 2012-2013 were eased only by the extraordinary support from the French central government (France, unsolicited AA/Negative/A-1+). The support was mainly through a CFP franc (XPF) 6 billion (€50.3 million) exceptional government grant in 2012 and a XPF5 billion cash advance in late 2013, which has enabled French Polynesia to repay most of its commercial debt and soften its liquidity squeeze, while the full effects of the July 2013 tax reforms kick in during 2014. Consequently, we consider that both ongoing and extraordinary state support underpin our view of the evolving-but-balanced institutional framework for French Polynesia.
Following the 2012 institutional reforms and the April-May 2013 local elections, we consider that French Polynesia benefits from a stable and strong political majority. Illustrating this is the recent successful political transition following the September 2014 resignation of former President Gaston Flosse. Moreover, we believe that the budgetary decisions since the July 2013 tax reform and up to the recent draft budget for 2015 show French Polynesia's willingness to restore public finances while supporting the economic recovery.
We continue to regard French Polynesia's financial management as weak, as our methodology defines the term, even taking into account management's orientation toward budgetary discipline, which is enhanced by the Investment and Debt Guarantee Fund (IDGF) that aims to secure future debt repayment in French Polynesia. In our view, financial management remains constrained by poor controls over government-related entities (GREs), inadequate-though-improving accounting practices, still-lax investment monitoring, and lightly defined long-term financial objectives.
In 2014, we expect French Polynesia's operating balance to stagnate, notably because of the cost of the early retirement plan and the extra contribution to the social solidarity fund. We consider that the full impact of the tax reform, expected from 2014, and continued adjustments in operating expenditures will enable French Polynesia to improve its budgetary performance, with an operating balance calculated on a modified cash basis gradually rising to 9.5% of operating revenues in 2016. This projection is higher than in our previous base case, partly because we assume, as publicly announced, that the French government would provide budgetary support to the social solidarity fund. In our view, this would help French Polynesia to post flat operating expenditures (excluding the municipal equalization fund) over 2014-2016. At the same time, we expect operating revenues--including the IDGF--to increase by an annual 0.9%. This growth is moderate, triggered by conservative growth assumptions for tax bases, which largely depend on how the local economy develops. Although recent indicators are encouraging, the local economy does not seem to have reached a turning point in our view, following the 3% annual contractions in real GDP on average since 2008.
Following the implementation of the operating expenditure adjustment measure, we consider that French Polynesia's ability to further reduce operating spending will be highly limited. We have the same view regarding capital expenditures given the importance of public investment for the local economy, as illustrated by French Polynesia's recently launched economic recovery plan.
Consequently, we expect investments to increase to XPF24 billion on average in 2014-2016 in our base case (approximately 20% of total expenditures) from XPF14.9 billion on average in 2011-2013 (including cash advances to the hospital). This is higher than the XPF20 billion we previously assumed, reflecting both French Polynesia's ability to resume access to normal external funding and its willingness to support future economic recovery, which we still view as uncertain.
In our base-case scenario, we think this increase in investments, together with delays in cashing in cofunding from the French central government, will translate into a temporary surge in financial needs compared with our previous expectation. Therefore, the deficit after capital expenditures will likely peak at negative 9.5% of total revenues in 2014-2015 (compared with negative 2.6% in our previous base case) before turning to a more moderate negative 2.2%) from 2016, on the back of the sharp improvement we anticipate in French Polynesia's operating balance.
In our view, such an improvement would enable French Polynesia to contain its recourse to debt. We estimate tax-supported debt will increase to about 109% of consolidated operating revenues at year-end 2016 from 102% at year-end 2013. We include in our calculation of tax-supported debt French Polynesia's direct debt (including France's XPF5 billion cash advance at year-end 2013) and financial debt for various non-self supporting GREs, such as airline company Air Tahiti Nui and the Polynesian housing office. We also include in consolidated operating revenues the own-source revenues of these companies, which we revised downward versus our last projections, based on actual financials.
We consider that French Polynesia reports very high contingent liabilities, because it is exposed to natural catastrophe risks and carries numerous GREs, some of which are in poor financial shape. Moreover, it has large off-balance-sheet commitments related to its social security system.
Liquidity
We continue to view French Polynesia's liquidity as less than adequate under our criteria. We consider that it will retain a debt service coverage ratio above 40% over the next 12 months, as well as adequate access to external liquidity.
In our view, cash flows, especially tax proceeds, are largely unpredictable and French Polynesia has no liquidity facility. However, we consider that French Polynesia's cash position has improved, as illustrated by a sharp reduction in days of payment and supplier debt compared with last year. We think this stems mainly from improved budgetary performance since late 2013, and resumed access to external liquidity.
Therefore, we now think that average available cash will cover about 45% of the debt service over the next 12 months (XPF16 billion), from less than 40% previously. However, we expect stabilization of French Polynesia's economy to be a supporting factor in structurally strengthening its stand-alone liquidity at a time when the region is considerably raising its investment efforts.
We consider that French Polynesia has resumed normal access to external liquidity over the last six months by contracting four bank loans and issuing two bonds, together totaling almost XPF15 billion. These moves attest to French Polynesia's ability to restore confidence in capital markets through political stability and strong budgetary reforms, in our opinion.
Taking into account our assessment of external funding as adequate, we now think further potential extraordinary liquidity support from the French central government is less likely.
OUTLOOK
The positive outlook reflects our view of a one-in-three likelihood that additional data will confirm within the next year that the recovery in French Polynesia's economy has become more entrenched, thereby further strengthening both its budgetary performance and its liquidity with available free cash structurally covering significantly more than 40% of debt service. If this occurs, we would likely raise our long-term rating on French Polynesia.
If we were to consider our upside scenario as less likely than we currently envisage, we would revise the outlook on French Polynesia to stable. This could stem from persistent recessionary conditions translating into subdued revenues and additional social-related charges, pressuring French Polynesia's stand-alone liquidity.
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