OREANDA-NEWS. Fitch Ratings has affirmed Societe Nationale Immobiliere's (SNI) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'AA-' with Stable Outlooks and Short-Term foreign currency IDR at 'F1+'.

Fitch classifies SNI as a credit-linked entity under its public-sector entity rating criteria, due to its ownership by Caisse des Depots et Consignations (CDC; AA/Stable/F1+), its strategic and financial integration with CDC and its key role in the supply of rented social housing. The rating differential - one notch down from those of its owner - takes into account that SNI's intermediate housing activity does not benefit from the same institutional support as does social housing activity.

Fitch only rates SNI's consolidated division, which focuses on intermediate housing, and excludes the pure social housing division including social housing entities (SHEs). The consolidated division and the social housing division represent 45% and 55%, respectively, of SNI group's total stock.

KEY RATING DRIVERS

CDC applies its prudential model to SNI, implying tight control. SNI reports quarterly to CDC on debt and liquidity. Most of the members of SNI's supervisory board are CDC representatives. Since 2014, the link with CDC has been reinforced, with CDC's CEO (M. Lemas) acting as the chair of SNI's supervisory board.

Fully consolidated within CDC, SNI is a semi-public company that is fully controlled by CDC. Social and intermediate housing developments run by SNI are part of CDC's medium-term strategic plan. Every year, a letter is addressed to SNI by CDC's CEO defining the policy guidelines on strategic and financial objectives.

As a general housing subsidiary of CDC, SNI is France's largest social landlord and aims to build 92,000 units over 2015-2020. Thanks to the intermediary and social stimulus package, the number of units managed by SNI should reach 398,072 in 2025 compared with 345,769 units at end-2015.

As a shareholder, CDC receives dividends from SNI. However, to support SNI's investment plan, CDC decided to abandon the payment of dividends over 2014-2016 and reduce the distribution rate thereafter. This support will translate into an equity increase of EUR900m over 2016-2021 which will be realised in cash and abandoned dividends. Fitch believes that in case of need, CDC would be able to provide SNI with further support.

Fitch expects the net results and cash flow of SNI's consolidated division will remain comfortable at EUR79m and EUR213m, respectively, in 2020. At end-2016, SNI's consolidated division will continue to post a sound budgetary performance with an interest cover ratio (operating result to interest expenditures) at 1.34x (2015: 1.61) and net results at EUR104.4m compared with EUR131.7m at end-2015.

In 2020, SNI expects to keep to the gearing (net debt on equity) set out in CDC's financial objectives (below 2.0x), with net debt of EUR4.3bn. At end-2016, SNI's consolidated division net debt will continue to slightly increase at EUR3.2bn (from EUR3.1bn at end-2015), with gearing at 1.7x. This high level is partly offset by a sound loan-to-value ratio that will be stable at 46% (2015: 44 %). For liquidity, SNI benefits from predictable cash flows due to its recurring rental business mainly for the public sector.

RATING SENSITIVITIES

A rating action on CDC would lead to a similar action on SNI. A weakening of the state's institutional and financial support to the affordable housing sector - which Fitch considers unlikely at present - may result in negative rating action.