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Fitch Affirms Caisse des Depots et Consignations (CDC) at 'AA'; Outlook Stable.

Paris/London: Fitch Ratings has affirmed Caisse des Depots et Consignations' (CDC) Long-Term Issuer Default Rating (IDR) at 'AA' and Short-Term IDR at 'F1+'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.

The affirmation reflects the unchanged links between CDC and the French state (AA/Stable/F1+) over the last 12 months, including our expectations of strong extraordinary support from the state and the strategic importance of CDC for the state.

KEY RATING DRIVERS

CDC is credit-linked to France, its sponsor, under Fitch's 'Rating of Public Sector Entities - Outside the United States' criteria top down-approach, and its ratings are equalised with those of its sponsor. This is in light of the strong likelihood of extraordinary support from its sponsor of its status as a special agency (etablissement special) and CDC's importance for the French public sector. The Stable Outlook mirrors that on France's IDR.

Legal Status (Stronger): CDC has fully state controlled special agency status, which is unique in France. However, Fitch considers the French state is bound to provide support to CDC and that it has the legal and financial means to enable it to timely meet its debt service obligations pursuant to Law 80-539 on French public establishments. Consequently, CDC's IDRs are aligned and move in tandem with those of the French sovereign.

Control (Stronger): CDC is closely monitored by the French state, notably through its 100% ownership of CDC, its supervisory board and due to CDC's strong special agency status. CDC is not a bank and therefore is not obliged to declare capital adequacy ratios, but ACPR, France's bank regulator, gives its opinion of CDC's capital adequacy in banking regulation terms. On 16 November 2017, French president Emmanuel Macron nominated Eric Lombard as Chief Executive Officer of CDC. His nomination must be confirmed in both houses of parliament.

Strategic Importance (Stronger): CDC's functions include managing most of the regulated savings deposits (notably Livret A) collected by French banks, and administering several public pension schemes and the deposits of the legal professions. CDC has also been entrusted with managing the unclaimed accounts of individuals held at French banks from 2016. CDC is also the institutional custody account manager of ACOSS (commercial paper and Euro CP rating: F1+), the French social security agency. CDC's long-term strategy focuses on economic development, housing, infrastructure - including lending to social housing, local governments and healthcare entities - and the energy transition.

Integration (Midrange): CDC's debt is not consolidated into France's general government debt. CDC benefits from a dividend policy agreed with its sponsor whereby CDC's annual dividend payments to the state cannot exceed 50% of its 'Section Generale' (core division) net profit. Dividends paid to the state amounted to EUR681 million in 2016 (EUR840 million in 2015). The integration also takes into account CDC's close links with France's whole public sector, through its financing of the social housing, local government, public hospitals sectors and its key role in a number of other government mandatory missions (pensions, social security, environment, sustainable development, transportation).

Operations: CDC operates in insurance (through CNP Assurances), postal services (through La Poste) and lending sectors through a 50% stake in BPI Group SA and 20% stake in Societe de Financement Local (SFIL). It also operates in leisure, real estate and housing through its subsidiaries and strategic participations, and has private equity operations. CDC additionally has stakes in large listed French and European companies. At end-2016, CDC had EUR166.5 billion in consolidated assets (EUR155.8 billion at end-2015).

Fitch considers CDC's profitability can be volatile due to its large equity portfolio and yields on fixed-income securities. In 2016, CDC posted a sound and stable consolidated net profit after allocation of non-controlling interests of EUR1.78 billion, above the 2015 net profit of EUR1.37 billion. Fitch expects CDC's profitability will remain sound in 2017. This expectation considers recorded net profit of EUR1.72 billion at end June 2017, the fact that we do not expect significant write-downs on CDC's securities or large losses on its fair-value equity portfolio, and the sustained growth of CDC's loans and investment growth according to its medium-term strategy.

Sizeable reserves (on CDC's social accounts) and stable outstanding deposits from the legal profession (EUR46.5 billion at end-2016 compared with EUR47.0 billion at end-2015) sustain CDC's solid liquidity profile. Liquidity needs are also covered by a EUR30 billion global commercial paper programme, a EUR20 billion Negotiable European Commercial Paper programme, and its EMTN and Negotiable European medium-term programmes. CDC's strong overall standalone liquidity is also underpinned by a stable amount of savings accounts (EUR255 billion) and a large equity portfolio of EUR20.1 billion at end-2016 (at fair value; within a total of EUR64.6 billion of available for sale financial assets).

CDC's shareholders' equity increased by EUR2.65 billion to EUR34.2 billion at year-end 2016, thanks to the impact of the net profit for the year and the EUR1.5 billion jump in unrealised capital gains generated by the ongoing bull market. CDC's capital adequacy ratio as calculated by its internal model is strong, while its ratio of equity/assets remained stable at 22.7% at end-2016.

RATING SENSITIVITIES

Rating action on the French sovereign would lead to similar action on CDC. The ratings could be downgraded if there were changes to CDC's legal status that weakened potential support from the state.

CDC's ratings would also be upgraded if France was upgraded.

The rating actions are as follows:

- Long-Term IDR: affirmed at 'AA'; Outlook Stable

- Short-Term IDR: affirmed at 'F1+'

- EUR18.5 billion Euro Medium Term Note programme (EMTN): affirmed at 'AA'/F1+'

- EUR1.5 billion Negotiable European medium term programme (NEU MTN): affirmed at 'AA'

- EUR20 billion Negotiable European Commercial Paper programme (NEU CP): affirmed at 'F1+'

- EUR30 billion global commercial paper programme (ECP and USCP): affirmed at 'F1+'

- Senior unsecured notes: affirmed at 'AA'
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:4EUFR
Date:Feb 5, 2018
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