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      FRIDAY, 14/01/2022 - Scope Ratings GmbH
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      Scope revises the Outlook of Poland to Negative, affirms A+ credit ratings

      Deterioration of governance standards and weakened public finances since Covid-19 crisis drive Outlook revision to Negative. Strong macroeconomics, a resilient, well-capitalised banking system, and reductions of external risk support ratings.

      For the rating report, click here.

      Rating action

      Scope Ratings GmbH (Scope) today has affirmed the A+ long-term local- and foreign-currency issuer and senior unsecured debt ratings of the Republic of Poland, and revised Outlooks to Negative. The Agency has also affirmed short-term issuer ratings of Poland of S-1+ in both local- and foreign-currency, and revised Outlooks to Negative.

      Summary and Outlook

      The revision of the Outlook for Poland’s credit ratings to Negative, from Stable, reflects the pursuant two credit rating drivers:

      1. A longer-standing trend of weakening of governance institutions and steadily increasing tensions between Poland’s government and the EU, growingly affecting an otherwise robust economic growth outlook, impacting the government’s fiscal position as well as, calling in question predictability of EU funding as well as contingent EU support under adverse economic scenarios; and
         
      2. A weakening of Poland’s public finances since this Covid-19 crisis, with associated debt accrual unlikely to be fully reversed over the medium run – partly in view of spending demands ahead of upcoming parliamentary elections by 2023 and an inflexible social spending plan – consistent with relatively higher fiscal vulnerabilities post-crisis.

      The Outlook revision reflects updated Scope assessments of Poland under the ‘environmental, social and environmental (ESG) risk’ and ‘public finance risk’ categories of its sovereign methodology.

      Additional credit challenges relevant to Poland include i) social risk factors such as a declining working-age population and weaker social infrastructure, alongside environmental challenges in the economic transition from dependence upon fossil fuels in power generation; ii) elevated inflation and present risk of economic overheating, with responsive higher government securities yields; and iii) financial-stability risk associated with the resolution of Swiss-franc-denominated mortgage loans held on bank balance sheets.

      Poland’s A+ credit ratings also reflect a number of credit strengths, including sound macroeconomic fundamentals and comparatively robust rates of economic growth anticipated over the coming years as well as comparatively strong longer-run growth potential. Next, access to EU facilities represents a credit strength, anchoring an investment outlook and easing the fiscal costs of meeting Poland’s significant investment requirements. Credit strengths also embed strong market access, a sizeable cash cushion and deep domestic capital markets. Poland’s economy has been comparatively resilient over this Covid-19 crisis, with the crisis disproportionately weakening services sectors more than industry. Poland’s ratings are abetted, moreover, by a profitable, liquid and well-capitalised domestic banking system alongside reductions of external-sector risk.

      The Negative Outlook represents Scope’s opinion that risks to the sovereign ratings are skewed to the downside over the forthcoming 12-18 months.

      The ratings could be downgraded in the event of, individually or collectively: i) governance risks and associated tensions with the European Union continuing or escalating absent significant resolution, with associated growing adverse implications as regards Poland’s economic and fiscal outlooks; ii) weaker budget discipline resulting in weakening of an outlook as regards debt sustainability; and/or iii) a global or regional shock bringing substantive output attrition and/or Poland’s external-sector risk profile weakening.

      Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) governance risks and associated tensions with the European Union were substantively reduced, materially curtailing associated implications as regards Poland’s economic and fiscal outlooks; ii) budgetary performance were to improve, bringing anticipation of a significantly declining trajectory of government debt/GDP; and/or iii) the country’s external balance sheet were to strengthen further.

      Rating rationale

      The first driver of the Outlook change reflects longer-standing weakening of governance institutions, growingly affecting otherwise robust economic growth prospects, undermining the government’s fiscal position as well as, critically, calling in question reliability of EU funding as well as contingent EU support under adverse economic scenarios.

      On 27 October 2021, the Court of Justice of the European Union (CJEU), on request of the European Commission (EC), imposed a EUR 1mn daily penalty upon Poland for a period until interim measures of a 14 July 2021 ruling were complied with1 – specifically, with respect to appeal for suspension of provisions under which the Disciplinary Chamber of Poland’s Supreme Court decides on requests for lifting judicial immunity, as well as on matters of the employment, social security and retirement of Supreme Court judges. Alongside another case associated with a lignite extraction mine2 that has observed a similar ruling, aggregate penalties against the Polish government currently accrue at EUR 1.5m per day (representing an albeit modest 0.02% of GDP on aggregate thus far). However, there is risk of the pace of accrual of charges increasing in the future.

      On 22 December 2021, the European Commission opened latest infringement proceedings with association to a separate breach of the primacy of EU law, after decision of the Polish Constitutional Tribunal to deny binding effects of interim measures prescribed by the CJEU and determine specific articles of EU treaty as incompatible with Polish law.3 If the most recent infringement procedure were not addressed over coming months, further monetary consequences on top of those currently imposed appear possible. As Poland has refused to pay penalties being accrued, penalties may be deducted from EU funding committed to Poland. However, were outstanding EU provisions to be addressed, further penalties may commensurately be reduced.

      Although Poland has, in the past, reversed some contested reforms under scrutiny from Europe and international partners – most recently as regards a media law cited by the United States and EU as aimed at quieting US-owned news channel TVN24 – a longer-run record reflects one of comparative weakening of institutions since the Law and Justice Party (PiS) came in government (in November 2015). The European Commission originally opened dialogue with Polish authorities under a Rule of Law Framework by January 2016.4 During December 2017, the Commission launched an inaugural Article 7 procedure relating to rule of law deficiencies in a decision against Poland5. The longevity of such disputes surrounding judicial independence, the rule of law, media freedoms and human rights suggests that, although Poland may in the future again reverse specific contested measures under scrutiny, there is no easy resolution of an underlying disparity of opinion from that of the EU as regards national sovereignty.

      EU Rule of Law protective measures have been bolstered over past years. Alongside debut of Article 7(1) procedures, beginnings of referral of cases to the CJEU and introduction of monetary penalties, the Polish Recovery and Resilience Plan has not yet been approved – relating to a sought EUR 36bn (5.3% of average 2021-26 annual GDP), including EUR 24bn of EU grant monies over 2021-26, on grounds of the government’s judicial revamp. Given that the plan is under consultation with the European Commission, this has restricted reception of a pre-financing tranche of 13% of aggregate RRF monies. Poland potentially faces additional risks under an EU 2021-27 multiannual budget (MFF) after introduction since 2021 of ‘Rule of Law Conditionality Regulation’, allowing the EU to suspend budgetary payments from the 2021-2027 MFF to member states where violations of the rule of law “affect or seriously risk affecting” management of EU funding. While the European Commission has hesitated thus far in activating such suspension of EU MFF financing as regards Poland and Hungary while the CJEU hears the respective nations’ legal challenge to the instrument, assuming legality were upheld over coming months, any suspension thereafter of 2021-27 MFF financing could increase risk to the timing of EUR 110.1bn in EU budget financing6 – by a distance the largest nominal MFF sum earmarked for any EU member state – for Poland under the 2021-27 multiyear period, equivalent to 15.8% of the nation’s average estimated 2021-27 GDP. Prolonged delay and heightened unpredictability in the timing and availability of European financing affect ultimately the absorption capacity of EU funding, where Poland has been sturdy, however, as regards an absorption rate over an earlier 2014-20 EU budgetary phase (spending around 69% of 2014-20 allocations), with a 2021-27 multiannual period representing a comparatively greater challenge, nevertheless, given need to expend remaining 2014-2020 MFF funding, allocate 2021-2027 MFF funding as well as finance assignments under the NGEU.

      While a worst-case Polish exit of the European Union is not realistic and Poland losing EU voting rights is similarly unlikely given a Hungary veto, institutional disagreements with the EU nevertheless undermine an investment outlook premised in part upon EU funding, tempering a longer-run economic growth outlook. In addition, budget costs due to monetary penalties and effects on the budget deficit from attenuated economic growth accrue with time, especially were government to seek replacement of delayed EU funding with national financing to advance projects. Uncertainty also poses effects on the zloty, with depreciation stressing currently elevated inflation. Finally, rule of law contentions cast doubt as regards other financing accessible to Poland but contingent upon the relationship with the European Union – such as with respect to EU balance of payments assistance under adverse economic scenarios that may require lender of last resort functionalities.

      The second driver of the Outlook change reflects a relative weakening of Poland’s sturdy public finances since the Covid-19 crisis, with higher public debt levels unlikely to be fully reversed over a foreseeable horizon even as deficits recede during early recovery – in view of continued spending demands ahead of upcoming parliamentary elections by 2023 and inflexible social spending programmes.

      Poland’s general government debt ratio was 57.4% of GDP as of Q2 2021, representing an increase from a 45.6% ratio as of Q4 2019 pre-crisis. The economic contraction and sizeable emergency budgetary actions widened the general government deficit to 7.1% of GDP in 2020, before correction to an estimated 3.6% during 2021 – the latter less than a previous government assumption as regards a 2021 deficit of 5.3%. The government sees a budget deficit of 2022 of 2.9% of GDP – under a 3% Maastricht criterion. Although budget deficits are expected to further ease this year as policy stimulus is rolled back and revenue continues recovery, spending pressures in view of upcoming parliamentary elections by 2023 and social spending programmes are likely to hold debt levels at somewhat more elevated ratios after the crisis. This includes costs of around 1% of GDP estimated a year from the “Polish Deal” reform programme announced in May 2021, aiming constructively for7: i) increasing average yearly spending on health care up to 7% of GDP over a six-year period; ii) reducing the labour tax wedge for lower-income citizens; iii) supporting old-age pensioners; iv) raising investment in infrastructure, digitisation, social facilities and green energy; and v) supporting the housing market. In addition to Polish Deal and National Recovery Plan investment, tax reform as well as social spending priorities, maintenance of an expansionary fiscal position in 2022 also reflects laws such as a hike of salaries of some state management officials. Scope estimates the debt ratio concluding a forecast horizon to 2026 at a more elevated (than pre-crisis) 54.3% with the debt trajectory being anchored by a robust nominal economic growth outlook but challenged by increasing financing rates as well as continued primary deficits. Given a more elevated debt stock and comparatively short average maturity of treasury debt (4.9 years), annual gross government financing requirements are seen averaging a moderate 7.4% of GDP per year over 2022-26, nevertheless above a 5.2% average pre-crisis (over 2015-19).

      Maintenance of an expansionary budget position, alongside a 7.5% hike of the minimum wage in 2022, come at a time when output has already fully recovered from the pandemic and a positive output gap from 2022 onward is anticipated. In this respect, inflationary pressure is expected to remain significant over 2022, amid evidence of economic overheating. Inflation stood at 8.6% YoY as of December 2021, averaging 5.1% over the year 2021. The government has been rolling out “Anti-Inflation Shield” programme measures such as curtailment of gasoline and diesel excise duties, vouchers for lower-income households and a forthcoming temporary cut of VAT aimed at providing consumers a degree of short-run inflation relief; however, inflation could easily re-rise medium run if/when such tax cuts were reversed. The IMF estimated inflation to average 5.6% over 2022 prior to gradually easing to inside a 2.5% +/- 1% central bank inflation range by 2023. On basis of current inflation risk and Poland having begun a rate hike cycle under a somewhat later timetable as compared with regional peers’ Czech Republic and Hungary, additional rate hikes are anticipated with a reference rate reaching at minimum 3%, after 215bps in rate rises brought the reference rate to 2.25% earlier this month. National Bank of Poland Governor Adam Glapiński has stated there is capacity for rates returning to 3% or even 4% although the pace of such rate rises may decelerate moving ahead. If inflation is more pronounced and/or persistent than the NBP currently anticipates (for inflation to peak in the middle of the year) as second-round effects and increasing wage growth (9.8% YoY in November) hold core inflation at elevated rates, securities yields could display capacity to climb higher from a 4.0% on the 10-year government bond (highest since 2014) currently, after having risen from 1.2% as of January 2021 – representing a stress on budgetary dynamics (after the average interest cost of public debt had declined to 2.1% in 2021, from 5.1% as of 2009). Prudently, the National Bank of Poland has suspended a quantitative easing programme given inflation dynamics, with holdings following bond purchases since March 2020 representing 7.3% of outstanding state treasury debt.

      Nevertheless, Poland’s A+ credit ratings reflect multiple credit strengths.

      Poland’s credit rating is anchored by a large, diversified economy and strong macroeconomic fundamentals. After a comparatively moderate downturn of growth of -2.5% during 2020 Covid-19 crisis peaks, output recovered an estimated 5.6% in 2021. Even considering economic slowdown presumed over Q4-21 and Q1-22 amid winter Covid-19 stresses and renewed economic restrictions introduced since December, economic growth is anticipated to remain robust over 2022 at 4.7% as well as during a 2023 election year (4.1%). Similar to peer economies, the Polish economy has displayed more substantive resilience during each successive wave of the pandemic, and industry and exporting sectors have withstood supply chain disruptions better than those across much of the EU – with minimal long-run scarring anticipated from the crisis. Medium-run potential growth is estimated of around 3% a year – higher than that of rating peer economies, even acknowledging working-age population decline estimated averaging around 0.8% per year over 2022-26. Policy initiatives to strengthen skills of the workforce and advance decarbonisation, supported by EU funding, are seminal to abetting economic competitiveness and extending a robust track record of economic growth. In this respect, the National Recovery Plan, funded by the RRF, presents an anticipated increase of output of 1.2pps by 2025 under Ministry of Finance estimates. Fiscal policy has likewise anchored employment dynamics over this pandemic – with unemployment seeing decline to 2.9% in 2022 and 2.8% in 2023, after 3.4% in 2021. Recently introduced, a government strategic investment fund ought likewise to drive spending required by local communities, amid a continued low level of national savings, mirroring a low investment rate of the non-financial corporate sector dominated by small and medium-sized enterprises.

      Poland’s credit rating is supported by a stable banking system, with resilient asset quality through the pandemic crisis allowing for stepwise removal of crisis-phase regulatory relief. Non-performing loan ratios have only modestly risen to 5.0% of aggregate loans as of Q3 2021, from 4.8% before the crisis, and loan performance has not materially worsened after conclusion of pandemic payment holidays. Tier 1 capital ratios improved to 17.3% of risk-weighted assets as of Q3 2021, from 16% pre-crisis, due significantly to temporary suspension of dividend payments and increased holdings of low-risk government bonds; liquidity coverage ratios have likewise significantly improved since the crisis. At the same time, the housing market has returned to pre-pandemic robust conditions. While removal of monetary stimulus does discourage excesses in fresh borrowing, some borrowers could face payment difficulty as interest rates continue rising although lowered debt service ratios since 2013 provide the private sector a degree of cushion. The legal risk from FX loans represents a concern as regards the banking system, with 15% of banking-system loans (though down from 42% as of 2009) and 12% of banking-system deposits (compared with 9% a decade before) denominated in foreign currency. Specifically, the severity of risk from EUR 21bn of Swiss franc-denominated mortgages to exposed banks has moderated over recent months, however, as key legal guidance suggests a reduced likelihood of the most adverse court outcomes with legal costs likely to be, moreover, spread over time, while the profitability of banks has improved.

      While Poland’s external sector has historically been among the sovereign’s credit weaknesses, this sector has seen substantive improvement during past years. Current account dynamics had improved, from a deficit of 6.9% of GDP in 2008 to a 0.5% of GDP surplus by 2019. During the Covid-19 crisis, the current account balance temporarily reached a surplus of 2.9% of GDP in 2020 but had reverted rapidly to -0.2% in the year to November 2021 amid a recent pick-up of domestic demand, imports as well as in dividend payments to international investors. Moving ahead, the current account is likely to remain in modest deficit on annual basis. Poland’s external sector is bolstered by a capital account surplus that includes structural EU fund inflows, reflecting a high quality of external funding sources, with foreign direct investment (FDI) liabilities constituting a high 50% of gross external liabilities as of Q3 2021. Inward FDI accelerated to 5.2% of GDP in the year to November 2021, from a 3% average over 2015-19. The net international investment position has improved to -40.8% of GDP in Q3 2021, from ebbs of -69.9% in Q3 2014; gross foreign debt had been trimmed to 58.4% of GDP in Q3 2021, from 2016 peaks of 76.3%. Foreign-exchange reserves have been enhanced to USD 145bn in December 2021, from USD 116bn pre-crisis as of end-2019, aided by the IMF’s 2021 global SDR programme allocation of USD 5.6bn in August 2021, with reserves representing presently an adequate 87% coverage of external debt maturing under one year. However, foreign-exchange risks prevail, given 13.3% of GDP in foreign-exchange-denominated general government debt, representing 24.3% of outstanding treasury debt as of Q3 2021 (however, trimmed from 34.4% in 2016)8.

      Core Variable Scorecard (CVS) and Qualitative Scorecard (QS)

      Scope’s Core Variable Scorecard (CVS), which is based on relative rankings of key sovereign credit fundamentals, provides an indicative rating of ‘aa-’ as regards the Republic of Poland. Poland receives no adjustment to this indicative rating under the reserve currency adjustment under the methodology. As a result, this ‘aa-’ indicative rating can be adjusted, under a next step, via the Qualitative Scorecard (QS) by up to three notches depending on the size of relative qualitative credit strengths or weaknesses versus an indicative peer group of countries.

      For Poland, ‘growth potential of the economy’ has been identified as a relative credit strength under the QS. Conversely, ‘macro-economic stability & sustainability’, ‘debt profile and market access’, ‘environmental risks’, ‘social risks’ and ‘institutional and political risks’ are identified as relative credit weaknesses in the QS.

      On aggregate, the QS generates a one-notch net downside adjustment and indicates A+ long-term credit ratings for Poland.

      A rating committee has discussed and confirmed these results.

      Factoring of Environment, Social and Governance (ESG)

      Scope explicitly factors in ESG sustainability issues during its ratings process via the sovereign methodology’s stand-alone ESG sovereign risk pillar, with a 20% weighting under the quantitative model (CVS) and in the qualitative overlay (QS).

      Under governance-related factors captured via the CVS, Poland underperforms ‘aa-’ indicative sovereign peers on the World Bank Worldwide Governance Indicators, with scoring having dropped since 2014 (the year prior to PiS entering government) across each of six WGI categories, with declines most pronounced as regards the categories of voice & accountability, political stability and rule of law. The weakening of governance institutions affects economic and fiscal outlooks, even if only modestly thus far – with such governance risk under the ESG rating pillar representing an important driver of this Outlook revision. While an exit from the European Union – ‘Polexit’ – remains highly unlikely, with 9 of every 10 Poles in support of Poland’s membership of the EU, there is also no easy path to resolution of present disagreements with the European Union. At the same time, PiS has positively presented Poland as a constructive member of the union, and prudently de-coupled disagreements over subjects such as rule of law from goals of developing closer economic ties with EU partners and a normal working relationship on other crucial issues – such as around an EU row with Belarus. The ruling coalition has been in parliamentary minority since August 2021, as policy disagreements resulted in exit of a junior coalition partner. Fresh elections are, at this stage, unlikely, although the government has faced difficulty in passage of some legislation. Under the QS, Scope assesses ‘institutional and political risks’ of Poland as ‘weak’ when compared with that of an indicative sovereign peer group.

      Credit factors associated with social criteria are similarly captured under Scope’s CVS quantitative model and QS analyst overlay. Under the CVS, Poland performs strongly on income inequality, as measured via a comparatively lesser income share of the 20% of the population with the highest incomes against that received by the 20% of the population with lowest incomes. However, CVS marks on labour force participation are weaker than those of peers. Poland receives a weak score under the CVS under the old-age dependency ratio, although nevertheless average as compared with generally weaker performance on this factor as regards many advanced economy rating peers of Poland. Social factors are furthermore reflected via Poland’s comparatively lesser GDP per capita as compared with that of countries within its indicative sovereign peer group but comparatively low rate of unemployment (3% in November 2021). The working-age population has been declining around 1% annually over the last decade, creating a steadily increasing skilled-labour shortage. However, large-scale inflow of migrant workers has helped contain wage pressures and eased adverse demographic dynamics. While a net present value of expected pension spending changes is benign at -1.8% of GDP from 2020-50 under IMF projections, the net present value of health care spending changes is more material at 24.2% of GDP over a same period. Poland exhibits weak social and transport infrastructure relative to peer economies and lesser digitalisation, ranking 24th of 27 EU member states on a Digital Economy and Society Index9, with Poland, nonetheless, making progress on many indicators during 2020. Authorities’ plans to modernise government job search assistance services and strengthen access to training, with concentration on digital skills, ought to support digital progress over future years. Polish students performed well on a 2018 OECD Programme for International Student Assessment (PISA) study of the scholastic performance of 15-year-old students across mathematics, science and reading, ranking 11th of 77 countries across the three categories; however, skills of the Polish workforce ranked a below-average 92nd of 141 countries under the World Economic Forum’s 2019 Global Competitiveness Report. In the QS, Scope assigns an evaluation of Poland’s ‘social risks’ as ‘weak’ as compared with that of sovereign peers.

      And, with respect to environmental risk, Poland receives medium scores on a CVS index of the economy’s carbon intensity (capturing the scale of an economy’s likely transition costs to greener economic structures over coming decades) under international comparison, albeit weaker scores than those of many rating peer economies. Likewise, Poland receives medium scores as far as the ecological footprint of the economy’s consumption patterns compared with its available biocapacity. Finally, CVS environmental scores as related to natural disaster risk, as captured via the World Risk Index, are strong, reflecting Poland’s comparatively lesser exposure to natural hazards. Poland adopted an energy policy strategy in 2021 that pledged to significantly curtail coal-fired power by the 2040s, with the main contribution to coal-based emissions stemming from the power sector. Poland participates under the European Emissions Trading System, creating incentives to reduce emissions. Poland’s energy transition strategy targets a 30% reduction of emissions by 2030 relative to 1990 levels. This transition will demand substantive investment, however, mostly in power generation, over more than a decade. In view of outstanding transition risks, a ‘weak’ assessment has been assigned on ‘environmental risks’ of Poland under the QS against relevant sovereign rating peers.

      Rating Committee
      The main points discussed by the rating committee were: i) rating level and country peers; ii) governance; iii) EU funding and contingent support; iv) public finances; v) business conditions; vi) next parliamentary elections; vii) inflation and monetary policy; and viii) Swiss franc mortgages and financial stability.

      Rating driver references
      1. Court of Justice of the European Union, Press Release No 192/21
      2. Court of Justice of the European Union, Press Release No 159/21
      3. European Commission, Rule of Law: Commission launches infringement procedure against Poland for violations of EU law by its Constitutional Tribunal
      4. European Commission, Rule of law in Poland: Commission starts dialogue
      5. European Commission, Rule of Law: European Commission acts to defend judicial independence in Poland
      6. Aggregate of European Agricultural Guarantee Fund, European Fund for Rural Development, Cohesion Policy and Just Transition Fund allocations to Poland; Source: European Commission, The EU’s 2021-2027 long-term Budget and NextGenerationEU: Facts and Figures
      7. Poland Ministry of Finance, Investor presentation, public finance budget act 28-09-2021 (document from Rated Entity) (Confidential)
      8. Poland Ministry of Finance, data from Public Debt Department (Confidential)
      9. European Commission, The Digital Economy and Society Index (DESI)

      Methodology
      The methodology used for these Credit Ratings and/or Outlooks, (Rating Methodology: Sovereign Ratings’ 8 October 2021), is available on https://www.scoperatings.com/#!methodology/list.
      Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
      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-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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-scale. 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://www.scoperatings.com/#!methodology/list.
      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 Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
      With Rated Entity or Related Third Party participation    YES
      With access to internal documents                                  YES
      With access to management                                             NO
      The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
      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/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

      Regulatory disclosures
      These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
      Lead analyst: Dennis Shen, Director
      Person responsible for approval of the Credit Ratings: Giacomo Barisone, Managing Director
      The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 1 November 2019.

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

      Conditions of use / exclusion of liability
      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.

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