Fosun’s entrance has no impact on BCP’s rating

The rating agency Standard&Poor’s has kept, this Thursday, Millenium BCP’s rating at ‘B+’ (highly speculative), leaving a positive outlook for the Portuguese bank’s perspectives on improving its rating. The information is brought forward in their rating following the announcement that the Chinese group Fosun has entered BCP’s ownership structure.

Fosun has acquired 16.7% of BCP’s shares last Sunday. But, for S&P, nothing has changed concerning the risk associated with the Portuguese bank. “We affirmed the ratings on Millenium BCP because, given the bank’s depressed equity prices, we did not consider the capital increase large enough to lead us to take a more positive view of its capitalization”, the North-American agency has declared. “We acknowledge, however, that the capital increase gives the bank some flexibility to accommodate a partial repayment of the contingent convertible instruments due to the government”, the document adds.

But there are more reasons that justify the reaffirming of BCP’s rating, highlighting the lack of banking experience the Chinese have and also the high indebtedness of the group.

"Fosun’s business profile, transitioning to an investment holding company from an industrial conglomerate; its limited presence in banking prior to this deal; its high debt leverage; and the relatively small share that Millenium BCP would represent in Fosun’s portfolio of investments, leads us to believe that the bank would be unlikely to benefit from rating uplift reflective of group support.”

The agency also adds that they “consider it possible that Fosun’s entrance may alter Millenium BCP’s current business plan” – more so because it has requested to be represented on the bank’s board of directors. “But we believe any changes, if they were to happen, would take place only once the bank has completed the restructuring plan agreed with the European Commission”, they pointed out.

The rating given by S&P’s reflects the bank’s solid franchise in Portugal and the “geographical diversification benefits provided by its profitable operations in Poland, and the progress achieved so far in its restructuring”.

Regardless, with the possibility the agency gives of increasing the rating over the next 12 to 18 months, the S&P’s explains two conditions for improving the risk profile of the bank headed by Nuno Amado:

• Making progresses in diversifying BCP’s wholesale funding sources instead of resorting to ECB borrowings, as a way to regain investors’ confidence;
• Stabilizing Portugal’s creditworthiness, which would ease the constraints on banking funding – facilitating both a lowering of funding costs and access to the capital market.