OREANDA-NEWS. Fitch Ratings has affirmed Pequenos y Medianos Astilleros, Sociedad de Reconversion SA's (Pymar) Long-term foreign currency Issuer Default Ratings (IDR) at 'BBB' and Short-term foreign currency IDR at 'F3'. The Outlook on the Long-term IDR is Stable.

KEY RATING DRIVERS
Although Pymar does not have a public sector shareholding, Fitch has applied its Public Sector Entity criteria for the rating because the entity plays a strong role in and is strategically import to the development of Spain's shipbuilding industry. Pymar's ratings are therefore credit linked with those of the Kingdom of Spain (BBB+/Stable/F2), but are notched down by one notch. Fitch has also factored into the rating potential support from Spain's autonomous communities, if needed, given the important role of Pymar in regional industrial activities.

The ratings take into account Pymar's key role in providing guarantees for the shipbuilding industry against its guarantee fund, Fondo Patrimonial de Garantias (FPG), which provides security to cover any potential losses. The ratings also take into account Pymar's important role in restructuring Spain's shipbuilding industry through the structural fund Fondo de Reestructuracion (FR), also managed by Pymar, within the different EU schemes applicable to the industry.

However, given the economic downturn, which severely impacted the industry and resulted in a large number of guarantees issued by Pymar being called, Pymar has not issued any new guarantees against FPG. New guarantees can be issued by a new fund, "Fondo de Garantias Navales", established by Pymar's wholly-owned subsidiary, Pymaval Garantias, S.A.U., in 2012; Fondo de Garantias Navales has stricter granting and limit criteria than FPG. The total level of FPG guarantees outstanding fell to EUR44m at end-2014 from EUR908m at end-2009.

Pymar's shareholder base comprises 20 small and medium-sized private shipbuilders. The central government, despite not being a shareholder, is represented on Pymar's board and executive committee, both of which lend considerable influence on decisions affecting the reconversion plans of the sector.

The Spanish small and medium-sized shipbuilders as a strategic sector provided direct employment to 1,401 people in 2014, but the industry's overall impact on employment is considerably higher. A significant amount of the work is outsourced and the trend is towards more outsourcing. Pymar estimates that the total number employed would increase to over 87,000 if indirect employment was included.

Pymar's main source of revenue has been the commission on guarantees issued and interest revenues on its investments. Nevertheless, the decline in investments, which have been utilised to cover guarantees that have been called, and the wind-down of the present portfolio of guarantees, have meant that the revenue from these two areas has declined significantly. Nevertheless, as the amount allocated to provision decreased in 2014, Pymar was able to report a net profit in 2014 of EUR0.3m, compared to EUR0.2m in 2013.

RATING SENSITIVITIES
Pymar's ratings are credit linked to those of the Spain's. Therefore, any rating action on the sovereign would be mirrored on Pymar.

A downgrade could also follow if there is a change in Fitch's assessment of state extraordinary support.