OREANDA-NEWS. Fitch Ratings has affirmed Spain's Sociedad Estatal de Participaciones Industriales' (SEPI) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB+' and its Short-term foreign and local currency IDRs at 'F2'. The Outlook on the Long-term IDR is Stable.

KEY RATING DRIVERS

The ratings and Outlook mirror those of the Kingdom of Spain to which SEPI is credit-linked. Fitch has classified SEPI as a dependent public sector entity (PSE) under its rating criteria. The link reflects SEPI's legal status, tight control and supervision under the sovereign. SEPI is wholly owned by the Spanish state and its objective is to provide strategic planning and management for public sector entities and restructuring for non-quoted companies in its portfolio.

Fitch considers the entity's legal status of 100% public ownership as supportive of its credit quality. SEPI was established in 1995 through Royal Decree. As a public-sector entity or "ente publico", it cannot be made bankrupt or liquidated. In June 2006 its legal status was modified so that it could benefit from state contributions and so that all future bond issues would benefit from a state guarantee.

Fitch considers the control and oversight by the state as highly supportive of SEPI's credit quality. SEPI reports to the Ministry of Finance, which approves its budget and borrowing, dictates its policy design and strategy, and appoints its audit office. SEPI President is also the Chairman of the Board of Directors. His appointment was made by the government by Royal Decree, on a proposal from the Minister of Finance and Public Administration.

Fitch considers the entity's strategic importance as highly supportive of its credit quality. SEPI is the sole Spanish body for restructuring public-sector entities. SEPIs mandatory objective is to provide strategic planning and management for public-sector entities and restructure non-quoted companies in its portfolio.

Fitch considers the entity's integration into general government accounts as moderately supportive of its credit quality. SEPI is not consolidated but revenue allocation is indicated in the sponsor's budget.

Historically, SEPI has also repaid inherited debt through proceeds from privatisation and the sale of its portfolio businesses. In 2012 SEPI at the holding company level had an average of 193 employees while at the group level had an average of 80,358, a significant increase from 26,179 in 2011. This was due to the incorporation of Correos, the postal system, increasing the number of staff by over 58,300.

RATING SENSITIVITIES

SEPI's ratings and Outlooks mirror those of the sovereign. Changes to the sovereign's ratings or Outlook would be reflected in SEPI's.

Furthermore, a dilution of control from the Spanish government or a change in the legal status of the entity with reduced strategic importance of the entity, which we currently view as unlikely, could lead to a downgrade.