OREANDA-NEWS. Fitch Ratings has affirmed La Poste's (LP) Long-term Issuer Default Rating (IDR) at 'A+', and Short-term IDR at 'F1'. The Outlook is Stable. Fitch has also affirmed all senior unsecured debt ratings at 'A+'/'F1'. A full list of rating actions is at the end of this commentary.

The affirmation reflect the unchanged links between LP and the French state (AA/Stable/F1+), including LP's strategic importance to France. LP is a public limited company owned by the state and public institution Caisse des Depots et Consignations (CDC; AA/Stable/F1+) with 73.7% and 26.3% stakes, respectively. The law mandates full public-sector ownership.

KEY RATING DRIVERS
Fitch considers LP to be credit-linked with its sponsor and applies a top-down rating approach from that of the sovereign. The two-notch rating difference reflects the lack of solvency guarantee and timely liquidity support from the state.

LP provides key public services such as the universal postal service and regional planning through its extensive post-office network. It is also tasked with retail banking accessibility, and press distribution. The public services missions are partly compensated by the state. LP also contributes to public sector funding, through its subsidiary La Banque Postale (LBP). Fitch estimates that the control and oversight by the state is strong. As France's second-largest employer, LP employs a significant, although slightly declining, share of civil servants (2014: 42%).

Although Fitch believes the state would provide LP with all necessary support to ensure continuity of the services it is in charge of, state support is subject to EU competition regulations and limited to capital injections and contribution to public service costs. Nonetheless, the EUR2.7bn capital increase subscribed by the state and CDC from 2011 to 2013 highlights the state's willingness to ensure LP's development.

The operating margin after revenue from public sector declined to 3.2% of revenues in 2014 from 3.6% in 2013. This is due to falling mail volume (-5.8%), lower revenue from public sector and despite growing turnover. Net income declined to EUR513m, from EUR624m in 2013. Including growing general corporate tax credit, funds from operations increased by 20% and represented 31% of net debt.We expect growth in the more profitable business lines (banking, express) to continue to offset the decline in mail revenue, which still accounts for a large share of turnover. This was evidenced by 1H15 results, with a firm increase in express (+16.5%) and steady growth in banking (+2.9%), leading to a stronger operating margin of 5.4%. The 2015 one-off mail tariff increase is also likely to offset at least partially falling volume for the whole year.

Leverage is moderate with net debt accounting for 43% of equity at end-2014, from 44% in 2013. At 1H15, with increasing operating cash flows, net debt decreased to EUR3.7m, or 38% of equity. The debt structure is sound, with a smooth repayment profile, medium-term maturity and low exposure to interest rate risk.

Cash holdings and short-term assets were EUR3.0bn at end-2014 from EUR3.3bn at end-2013. At year-end 2014, cash and liquid assets covered the 2015-2017 long term debt service by 2.2x. Short-term funding is comfortable, resting on a EUR2bn commercial paper programme backed by a EUR725m syndicated revolving credit line and EUR500m of cumulative credit lines with LBP.

RATING SENSITIVITIES
An upgrade could follow an upgrade of France's sovereign rating or from a stronger support link with the state.

The ratings could be downgraded if links between LP and the state were weakened by, among others, a dilution of control, a decline in strategic importance or a weakening of public service compensations.

Regulatory evolutions that would further prevent the state from supporting LP would also be negative for the ratings. A downgrade of the sovereign rating would be reflected in LP's ratings.

The rating actions are as follows:
- Long-term IDR: affirmed at 'A+'; Outlook Stable
- Short-term IDR: affirmed at 'F1'
- EUR7bn EMTN programme: affirmed at 'A+'/'F1'
- EUR1.5bn BT programme: affirmed at 'F1'
- EUR500m Euro Commercial Paper programme: affirmed at 'F1'