Rating action

Scope Ratings GmbH (Scope) has today affirmed the BBB+ issuer rating and BBB+ senior unsecured debt rating on Cassa Depositi e Prestiti S.p.A. (CDP). Scope has also affirmed the S-2 short-term debt rating. All ratings have a Stable Outlook.

Rating rationale

CDP’s BBB+ issuer rating is aligned with that of the Republic of Italy (BBB+/Stable) and reflects the following assessments:

• Strong level of integration with the Republic of Italy: CDP is the Italian National Promotional Institution, with a mission to foster the country’s economic development.

1. CDP is majority-owned and controlled by Italy’s ministry of economics and finance (MEF, 83% stake), with the remainder held by banking foundations. The MEF elects most of CDP’s board and sets the policy regarding ‘separate account’ activities (i.e., management of resources from state-guaranteed postal savings), which are supervised by a parliamentary committee.
   
   CDP retains autonomy in setting strategy within the limits of its by-laws. Moreover, the ability of the banking foundations to veto resolutions requiring a qualified majority (such as changes in by-laws) ensures CDP can pursue its corporate objectives without excessive political interference.
    
2. CDP carries out activities of general interest by channelling postal savings towards public administration, infrastructures and enterprises. CDP is also a ‘strategic investor’ in Italian companies of significant national interest.
   
   In recent years, CDP’s business scope has broadened. Activities now include technical advisory and third-party funds management, and its toolkit has expanded to private equity, venture capital and private debt financing. CDP plays two roles in Italy’s National Recovery and Resilience plan: as a financing entity, through the allocation of resources for equity and debt financing and funds management, and as an advisor.
    
3. There is a high degree of financial interdependency between CDP and the Italian state. Most of CDP’s funding comes from state-guaranteed postal savings, in the form of either passbooks or bonds. At the same time, CDP plays a crucial role in supporting the government mainly through its lending activity to the public sector. CDP is also a meaningful investor in Italian sovereign bonds.

• High likelihood of exceptional support from the Italian MEF: Scope regards the likelihood of exceptional support as high, despite the absence of an explicit guarantee on all of CDP’s liabilities. This view is based on CDP’s strategic importance to the Italian state, the lack of credible alternatives, and the severe implications a default would have for the Italian economy and public finances.

• Sound stand-alone financial fundamentals: Although CDP does not pursue a profit-maximising strategy, it has achieved solid earnings in recent years (ROE at around 10%), partly thanks to the stream of dividend income from its equity portfolio. Lately, in a higher interest rate environment, profits have increased due to wider commercial spreads.

CDP’s asset quality continues to benefit from its material exposure to Italian public finance entities at both local and central government levels.

CDP manages its funding and liquidity position in a similar manner to financial institutions subject to Basel regulations. The bank benefits from a stable flow of postal savings, which are guaranteed by the state, and which make up almost 80% of total funding as of H1 2023.

Our supplementary analysis of CDP’s financial fundamentals does not result in a further adjustment to the indicative rating derived from the top-down approach.

Outlook

The Stable Outlook reflects the Stable Outlook on the rating of the Italian Republic.

Rating-change drivers

A change in the Republic of Italy’s rating and/or Outlook could move CDP’s rating and/or Outlook in the same direction.

A material change in the level of integration with the Italian Republic and/or credit support in the form of the guarantee on postal savings could move the rating down.

Qualitative Scorecards (QS1 and QS2)

Scope applies a top-down approach (QS1) in assessing the creditworthiness of CDP, which takes the public sponsor’s rating (Republic of Italy: BBB+/Stable) as the starting point and then potentially negatively adjusts it based on the assessment of: i) control and regular support; and ii) likelihood of exceptional support (QS2). The approach also includes a supplementary analysis of the entity’s financial fundamentals.

The adoption of the top-down approach (QS1) reflects the strong integration between CDP and its public sponsor, the Italian Republic, resulting from: i) a ‘medium’ integration assessment for legal status; (ii) a ‘high’ integration assessment for shareholder structure; iii) a ‘high’ integration assessment regarding its purpose and activities; and iv) a ‘high’ integration assessment on financial interdependencies.

Scope assesses control and regular government support for CDP as ‘medium’ (QS2) reflecting: i) a ‘medium’ assessment of government control over strategic and operational decision-making; ii) a ‘high’ assessment of control over key personnel, governing and oversight bodies; and iii) a ‘medium’ assessment of ordinary financial support.

Scope assesses the likelihood of exceptional support to be ‘high’ (QS2), reflecting: i) a ‘high’ assessment of strategic importance for the public sponsor; ii) a ‘high’ assessment of substitution difficulty; and iii) a ‘high’ assessment of the socio-economic, reputational, and financial default implications in the event of a hypothetical default.

The assessments under QS1 and QS2 result in an indicative rating of ‘bbb+’ for CDP. The supplementary analysis of stand-alone financial fundamentals has not led to any adjustment to the indicative rating, resulting in a final rating of BBB+.

Methodology
The methodology used for these Credit Ratings and Outlooks, (Government Related Entities Rating Methodology, 13 July 2023) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Alessandro Boratti, Senior Analyst
Person responsible for approval of the Credit Ratings: Pauline Lambert, Executive Director
The issuer and the senior unsecured debt Credit Ratings/Outlooks were first released by Scope Ratings on 24 October 2017. The Credit Ratings/Outlooks were last updated on 16 May 2023.
The short-term debt Credit Rating/Outlook was first released by Scope Ratings on 1 February 2018. The Credit Rating/Outlook was last updated on 16 May 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
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