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      FRIDAY, 02/12/2022 - Scope Ratings GmbH
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      Scope affirms Greece's BB+ long-term credit ratings and revises Outlook to Positive

      Strengthening of European institutional support, a favourable trajectory of government debt and banking-sector reforms drive Outlook revision. Very high government debt, banking-system fragilities and structural economic bottlenecks remain challenges.

      For the updated report accompanying this review, click here.

      Rating action

      Scope Ratings GmbH (Scope) has today affirmed the Hellenic Republic’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at BB+ and revised Outlooks to Positive, from Stable. The Agency has affirmed short-term issuer ratings at S-3 in local- and foreign-currency, with Outlooks revised to Positive (from Stable).

      Rating drivers 

      The change of Greece’s BB+ long-term sovereign rating Outlook to Positive reflects the following credit-rating drivers:

      1. Strengthening of European institutional support for Greece, reflecting changes since the Covid-19 crisis in support of vulnerable euro-area member states from monetary- and fiscal-policy interventions. This reflects, since 2020, innovations of ECB asset purchase programmes and relaxation of collateral framework requirements that have adopted Greek sovereign bond instruments despite the borrower’s non-investment grade ratings. Such support from the Eurosystem has been further bolstered in the current year. Central-bank measures, together with innovation of collective EU fiscal programmes, after endorsement of the EUR 30.5bn (13.4% of average 2021-26 GDP) Recovery and Resilience Plan for Greece, alongside possibility for further debt treatment long run from European partners, demonstrate a more lasting European backstop beyond the Covid-19 crisis, supporting debt sustainability and creating fiscal space for the government to expend on public investment.
         
      2. A stronger-than-anticipated trajectory of decline of public debt, on the back of high inflation, above-potential real economic growth, low average interest costs of the prevailing debt portfolio and expectation of primary fiscal surpluses by year 2023.
         
      3. Structural reforms that have meaningfully curtailed high non-performing loan (NPL) ratios and substantively enhanced banking-system stability alongside policies aligned with Recovery and Resilience Facility funding and the European Semester mobilising investment and boosting recovery.

      The Outlook revision reflects updated Scope assessments of Greece under the ‘domestic economic risk’, ‘public finance risk’ and ‘financial stability risk’ categories of its sovereign methodology, and represents Scope’s opinion that risks to the sovereign ratings are skewed to the upside over a forthcoming 12-18 months.

      However, Greece’s credit ratings remain challenged by: firstly, high government debt, representing a continued vulnerability as markets reappraise risk associated with highly-indebted euro-area sovereign borrowers amid elevated inflation and central-bank rate rises. Scope would consider further substantive reductions of the debt ratio as credit positive. Furthermore, gradual weakening of a strong structure of debt, with higher refinancing costs, gradual transition from public back in direction of private ownership of the debt, and shorter average tenors of new debt, reflects a challenge. Secondly, banking-sector fragilities associated with lowered capital-adequacy ratios, strengthened sovereign-bank interconnections, and still higher NPLs as compared with euro-area averages reflect a credit weakness. Finally, structural economic weaknesses in the form of modest medium-run growth potential, high unemployment, limited economic diversification, rigidities of the labour market and a weak external sector constrain ratings.

      The long-term ratings could be upgraded one notch to investment-grade if, individually or collectively: i) maintenance of European support for Greece reinforces assumption of enhanced permanence of European institutional backing of Greek debt markets and debt sustainability after coming elections and beyond the Covid-19 crisis; ii) nominal growth and fiscal consolidation maintains a strong and sustained downward public-debt trajectory; iii) banking-sector risks were further reduced, enhancing credit provision to the private sector; and/or iv) structural economic and external imbalances are curtailed, elevating medium-run growth potential and strengthening macroeconomic sustainability.

      Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) Eurosystem support for Greek debt were curtailed or proven ineffective, triggering crystallisation of more severe market scenarios; ii) fiscal policies remain loose for longer or a more severe economic downturn materialises, impeding or reversing a current trajectory of reductions of the public-debt ratio; iii) banking-sector risks re-intensify, raising risk of crystallisation of contingent liabilities to the sovereign balance sheet; and/or iv) reform commitment weakens, such as after 2023 elections, dampening outlook for curtailment of macroeconomic imbalances and undermining contingent European support.

      Rating rationale

      The first driver of the Outlook revision of Greece’s sovereign ratings is strengthened European institutional support, which Scope expects to endure past current crises, with monetary and fiscal policy innovations reflecting permanently available policy instruments. This reflects, specifically, monetary-policy measures centring upon innovations of ECB asset purchases and relaxation of collateral-framework requirements – with waivers that have allowed for the adoption of Greek sovereign bond instruments under facilities. In addition, EU fiscal programmes have advanced, including the Recovery and Resilience Facility allocation for Greece under a programme of EU common debt issuance – representing steps in direction of greater fiscal integration within the European Union, supporting disproportionately the most-indebted regional borrowers.

      ECB policy innovations since the Covid-19 crisis have been an anchor preserving sustainability of financing conditions. Prior to the crisis, Greek bonds were ineligible for ECB asset purchases or as collateral, and ECB purchases were additionally restricted in its capacity to address idiosyncratic, country-specific market failures due to purchasing based on the capital key. The central bank introduced in 2020 flexibility of purchases rather than strictly purchasing assets on aggregate basis proportionally to a country’s population and economic size. This innovation of flexible adjustment of purchase parameters – including further adaptation of rules in provision of specific waivers for credit-rating regulations for purchases of Greek bond instruments absent an investment-grade rating – support especially funding conditions of euro-area member states with the most significant propensity for market stress. Said innovation of enhanced flexibility of central-bank liquidity provision reflected furthermore loosening of collateral-framework credit-rating regulations in 2020, specifically the granting of a waiver introducing temporary eligibility of Greek government debt instruments, which has anchored Greek debt markets and helped liquidity of the banking system.

      Scope has held the view said innovation of eligibility of Greece (despite sub-investment-grade ratings) for and flexibility of ECB monetary policies is likely to endure and be available for reintroduction during future crises if required. Recent announcements since the Russia-Ukraine crisis have supported said assumption. Firstly, the ECB has communicated that, during the Pandemic Emergency Purchase Programme (PEPP)’s reinvestment phase, slated presently through at least end-2024, Greek debt instruments will remain available for purchase above and beyond roll-over of redemptions if required. Secondly, extension of the waiver with respect to collateral eligibility of Greek bonds under the Eurosystem Credit Assessment Framework until at least conclusion of the PEPP reinvestment period supports markets. Finally, advancement of a novel ‘Transmission Protection Instrument’ absent termination date signals the sought greater permanence of ECB flexibility beyond Covid-19 and can be activated to counter “unwarranted disorderly market dynamics”1 specific to a select member state. Eligibility of Greece for ECB programmes and an enhanced policy toolbox of the European Central Bank since the crisis ease some bottlenecks affecting ECB lender of last resort functions within monetary union. So long as Greece stays compliant with European rules, Scope views the Eurosystem as likely to support Greek markets in the future under adverse market scenarios – providing a much-needed financial backstop.

      In addition to ECB support, Greece’s credit ratings benefit from EU fiscal policies. The country is achieving main milestones of the Next Generation EU (NGEU) funding programme, consisting of adoption of structural-reform conditionality and execution of investment programmes. The NGEU funding for Greece amounts to EUR 30.5bn by 2026 (13.4% of average 2021-26 GDP – one of the highest such ratios of the EU), with a majority of funding (EUR 17.8bn) in grants and the rest being concessional loans. This financing is linked to measures modernising the economy and adaptation in the face of the climate challenge. Around one quarter of programmed monies have been disbursed to Greece to date, with EUR 13.5bn of investment projects approved, of which EUR 1.7bn have been disbursed to project owners. The NGEU programme shifts a segment of investment from being nationally- to EU-funded and links such investment to reform conditionality – supporting economic potential and debt sustainability.

      European support for Greece furthermore reflects the partnership after the Economic Adjustment programmes of past years alongside post-programme Enhanced Surveillance framework that concluded2 during August of this year. Greece has entered this year normal post-bailout surveillance – similar to Ireland, Spain, Cyprus and Portugal – until it has repaid 75% of loans received (circa 2059), ensuring a prolonged phase of biannual (lighter) monitoring of structural-reform and fiscal-consolidation measures from European partners. The EU’s post-bailout surveillance seeks to ensure annual gross financing needs of Greece remain under 20% of GDP up to 2060, with the Eurogroup agreeing to review, at the end of the European Financial Stability Facility grace period in 2032, whether additional debt measures might be needed to sustain attainment of this objective.

      The second driver for revision of Greece’s rating Outlook to Positive reflects a stronger-than-anticipated trajectory of decline for public debt and expectation of return to a primary budget surplus by 2023. The trajectory of debt reflects expectation for a degree of further convergence of Greece’s elevated debt ratio with that of other highly-indebted euro-area sovereigns.

      After more than a decade and many initiatives from European and international partners for setting Greece’s general government debt ratio on a sustainable trajectory, the debt ratio had instead reached fresh all-time records of 206.4% of GDP by 2020 amid the Covid-19 crisis. However, supported by robust economic recovery since Q3 2020 (8.3% growth in 2021; a further 6% growth estimated for 2022), elevated inflation (9.5% estimated for 2022 (HICP), compared with a 2012-21 inflation average of -0.1%), still-low average interest costs of the outstanding debt portfolio after public- and private-sector debt restructurings and concessional loan programmes, plus reduction of the budget deficit to 3.5% of GDP in 2022, from 8% in 2021 and 10.9% in 2020, Greek debt is estimated to decline a meaningful 37pps (from 2020 peaks) to about 169% of GDP by year-end 2022.

      Going forward, Scope’s baseline debt-sustainability analysis envisions a further decline of this public-debt ratio, although with said decline slowing in rapidity as nominal economic growth normalises, reaching 160.3% by 2023 and 147.9% by 2027. This baseline scenario assumes near-term growth slowdown to 1.1% for 2023 but followed by above-potential economic growth of 1.5% in 2024 and 1.4% during 2025-27. The scenario considers elevated GDP deflator inflation of 5.4% in 2023 before 1.9% on average between 2023-27, contrasting sharply with the -0.5% averaged during 2011-20. Furthermore, the scenario assumes expected achievement of a primary budget surplus for a first time since before the Covid-19 crisis by next year – with headline budget deficits thereafter to stay under Maastricht 3% of GDP limits between 2023-27. Under such a scenario, debt-to-GDP returns to its lowest levels since the 2012 Private Sector Involvement by 2027 and converges on Scope expectations for the general government debt of Italy (142.1% of GDP by 2027). The Positive Outlook reflects Scope’s opinion that an ecosystem of high inflation represents a disparity supporting the debt trajectory over the forthcoming years. Nevertheless, adverse scenarios prevail, which might slow or reverse the declining path of debt, ranging from: i) a sharp economic downturn; ii) a return to low inflation; iii) a sustained and more severe rise in borrowing rates; and/or iv) an unexpected weakening of the fiscal position. Under one adverse scenario of two years of recession over 2023-24, Greek debt concludes a forecast horizon to 2027 at 171.2% of GDP.

      The third driver of the Outlook revision is structural-reform policies that have curtailed high non-performing loan ratios and enhanced banking-system stability alongside policies aligned with Recovery and Resilience Facility financing and the European Semester mobilising investment and boosting recovery.

      Reform adoption, in cooperation with European partners, has spanned a range of policy areas, such as managing the socio-economic impact of the pandemic and facilitating implementation of public investment. An insolvency-framework reform came into effect on 1 June 2021, after a framework on rehabilitation of companies and corporate bankruptcies entered into force on 1 March 2021. The Hercules Asset Protection Scheme completed its last securitisations by October 2022, after launch in December 2019, having facilitated guarantees of loans of nearly EUR 55bn. This scheme has driven a substantive decrease in NPL ratios to 9.5% of total loans on consolidated basis by June 20223, from 49.2% at June-2017 peaks (and 40.0% as of end-2019). All four systemic Greek banks are expected to achieve an objective of single-digit NPL ratios by end-2022.

      Alongside EU NGEU funding, the National Recovery and Resilience Plan, “Greece 2.0”4, seeks mobilisation of an added EUR 26bn in private-sector investment and outlines reforms across four areas: i) green transition; ii) digital transition; iii) employment, skills and social cohesion; and iv) private investment and economic transformation. Authorities expect Greece 2.0 to raise output by 4.3% by 2026, while, combined with programmed structural reform, output could rise 6.9% by 2026. This is aided by Greece’s strong record in EU fund absorption, having ranked second among the EU-27 in its absorption rate of cohesion funds during the 2014-20 EU multiannual budget phase. By comparison, the European Commission estimates the NGEU impact for Greek growth (not including the growth impact of structural reforms) could, short to medium run, raise baseline annual growth 0.3-0.5pps during 2021-2026.

      Greece’s BB+ ratings are anchored by a strong profile of debt resulting from proactive public-debt management of past years, supportive measures of euro-area creditors since the global financial crisis alongside earlier low-interest global conditions. This is reflected in a high share of debt held by the official sector (about 85% of aggregate debt), after including Greek bonds temporarily held via the Eurosystem in this figure. As sovereign ratings are assigned on debt due to be paid to the private sector, this high share of debt held on the official-sector balance sheet is credit positive. This debt structure is, furthermore, anchored by a long weighted-average debt maturity of 18 years5 – the longest of the agency’s rated sovereign universe – which, together with 100% of debt outstanding on fixed rate (after accounting for interest-rate swap transactions), helps cushion effects of higher interest rates translating to higher debt-servicing costs. Greece’s financing risks are furthermore eased by a cash balance of about EUR 38bn (17.6% of GDP) as of April 2022.

      Nevertheless, as Greece exits its economic-adjustment programmes and associated concessional loans and debt relief, sought transition to dependence on market financing, especially under a current higher rates environment, will gradually weaken said strong structure of debt. Amid higher long-end rates this year, the weighted-average maturity of new borrowing during 2022 declined temporarily to 5.0 years, with an average maturity of outstanding debt having eased (to 18 years) from 20.5 years at 2019 peaks. As Greece borrows in markets and with the Eurosystem expected to begin quantitative tightening by 2023, publicly-held debt will transition back to private hands gradually. Furthermore, higher costs of borrowing in markets this year (with a 10-year government bond yield currently around 3.8%, off of October-2022 peaks of 5.1% but still well above August-2021 lows of 0.5%) has raised the (low) average net interest costs of the debt portfolio – to 1.6% in 2022, from 1.2% as of 2021 lows. Scope expects this average interest cost of Greek debt to double to 2.5% by 2027 – remaining below levels from before the Greek crisis of the early 2010s.

      Greece’s ratings remain constrained by significant credit weaknesses.

      Firstly, Greece’s government debt remains very elevated – second highest of Scope’s publicly-rated sovereign universe of 38 nations, after only that of Japan (A/Negative). Although Greece’s debt profile is comparatively strong, the high stock of debt nevertheless exposes Greece to market reappraisals of risk associated with debt sustainability, especially under any scenarios of inability of the ECB to effectively support Greek debt markets – such as owing to constrained monetary space, any renewed exclusion of Greece from ECB facilities due to non-investment-grade ratings and/or any future non-observation of Greece of European rules disqualifying central-bank interventions. This vulnerability from a high stock of debt has been witnessed to a degree in 2022 – with Greece’s yield spread to Germany having reached highs of 302bps, before easing to 202bps at time of writing – and represents a core rating constraint. Furthermore, amid higher refinancing costs, net interest payments are seen rising to a (still-moderate) 8.7% of general-government revenue by 2027, from 5.0% at 2021 lows. This means net interest payments are returning by 2027 to the highest since 2012 even as the debt-to-GDP ratio declines by 2027 to the lowest since the 2012 debt restructuring. Nevertheless, Greece’s debt service to general government revenues remains below that of Italy and Portugal. Although Scope expects primary surpluses over forthcoming years, uncertainties concerning fiscal policy have furthermore risen following exit from Enhanced Surveillance and with 2023 elections fast approaching. Any electoral uncertainty and/or post-election pivot of fiscal policy could raise financial risk.

      Secondly, despite declines of NPLs, the banking system remains burdened by the highest NPL ratio of the euro area. Elevated NPLs weigh on bank profitability and banks’ abilities to co-sign investment and support output recovery. Although banks have taken capital-enhancing actions to cover cost of non-performing loan securitisations and gradual phasing out of transitional prudential arrangements, tier 1 capital ratios dropped to 13.9% of risk-weighted assets in Q2 2022, from 15.2% as of Q4 2020. This reflects, furthermore, low profitability and poor asset quality, the latter including a high share of lower-quality capital in deferred tax credits (which accounted for 63% of total prudential own funds as of June 2022) and still-high NPL ratios of non-significant banks (49.7%), which did not hold eligibility to benefit from government guarantee schemes. The high share of deferred tax credits, banks’ increased domestic government bond holdings, the equity stakes held by the state in the banking system and state guarantees under the Hercules scheme imply a stronger sovereign-bank nexus – increasing contingent risks for the sovereign under stressed banking-system scenarios. Finally, three of four systemic banks demonstrated core capital ratios falling to 8% or lower under an adverse scenario of the European Banking Authority 2021 stress tests.6

      Finally, ratings challenges reflect Greece’s modest long-run potential real rate of growth of around 1%, which remains restricted by working-age population contraction of 0.5% a year during 2023-27. Furthermore, limitations in economic diversification, rigidities in the labour market, a low investment share in economic product (lowest of the EU), still high final consumption relative to disposable income and elevated levels of private-sector arrears are credit challenges. As of Q2 2022, the Greek economy remained 23% smaller than it was ahead of the 2008-09 global financial crisis – reflecting consequences of crises experienced during the period since. Likewise, unemployment remains comparatively elevated at 11.6% in October, although levels have eased off of June 2020 peaks of 20.3%. Tax compliance and elevated spending on pensions and public-sector wages (above euro-area averages)7 are further credit-ratings constraints, although substantive efforts have been made in the improvement of tax collections. In addition, Greece’s ratings are constrained by a weak external sector, including structural current-account deficits, which have widened to about 8.4% of GDP in the year to September 2022, from 1.5% in 2019. Looking ahead, the IMF sees the current-account deficit moderating gradually to 3.9% of GDP by 2027. Due to external deficits, Greece’s net international investment position stood at a weak -156% of GDP in Q2 2022 (although improving from -181% at Q2-2021 lows), even though associated risks are mitigated by a high share of euro-denominated liabilities owed to official-sector creditors.

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

      Scope’s Core Variable Scorecard (CVS), which is based on the relative rankings of key sovereign credit fundamentals, provides a first indicative rating of ‘bb’ for the Hellenic Republic. Greece receives a one-notch uplift to this indicative rating via the reserve-currency adjustment for euro-area membership under the methodology. As such, under the methodology, ‘bb+’ final indicative ratings can thereafter be adjusted by the Qualitative Scorecard (QS) by up to three notches, depending on the size of relative credit strengths or weaknesses versus peers based on analysts’ qualitative analysis.

      For Greece, the following relative credit strengths are identified: i) fiscal policy framework; ii) debt profile and market access; iii) external debt structure; and iv) banking sector oversight. Relative credit weaknesses are signalled for: i) growth potential of the economy; ii) macro-economic stability & sustainability; iii) banking sector performance; and iv) social risks.

      The combined relative credit strengths and weaknesses under the QS generate no net adjustment. A former one-notch negative adjustment made at rating-committee level to account for the persistence of banking-sector challenges and an elevated ratio of non-performing loans has been removed on account of reduction of NPLs. As such, aggregate adjustments signal a sovereign credit rating of BB+ for Greece.

      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 significant 25% weighting under its quantitative model (CVS).

      With respect to environmental risk – Greece scores moderately on the CVS on carbon emissions per unit of GDP but, like other advanced economies, comparatively weakly on carbon emissions per capita. Greece scores the second weakest of the euro area on exposure and vulnerability to natural-disaster risk – the latter as measured vis-à-vis the World Risk Index. Greece’s marks are, moreover, moderate under the CVS on ecological footprint of its consumption compared with available biocapacity. Overall, on the CVS quantitative model, Greece performs slightly above a global median on the environmental ESG sub-category of the CVS model but nevertheless second worst of the EU-27 after the Netherlands. Droughts and wildfires are becoming more frequent and intense. While burden-sharing via EU support eases associated environmental costs for Greece, natural disasters nevertheless hold not only direct economic and fiscal costs but also indirect consequences such as for the important Greek tourism industry. Greece is seeking, however, to respond to this challenge – creating a ministry to address impact of climate change. Greece holds an ambitious climate policy, moreover, under its revised National Energy and Climate Plan8, aiming for 42% reductions from 1990 greenhouse gas emissions levels by 2030 before a zero-carbon society by 2050, alongside penetration of renewable energy sources for 60% of electricity production within a decade. Greece has had to delay its inaugural issuance of a green bond, with the first issue expected instead to be part of the state’s borrowing strategy for early 2023 (at a planned maturity of eight to 15 years). Greece’s environmental objectives and moves towards more sustainable economic growth are considered within Scope’s QS via an assessment of ‘neutral’ on ‘environmental risks’ as compared with the sovereign peer group.

      Socially-related credit factors are similarly captured under Scope’s CVS quantitative model and QS qualitative overlay. In the CVS model, Greece receives strong scores on income inequality (as captured through the ratio of the income share of the 20% of persons with the highest household incomes to the 20% of persons with the lowest household incomes), moderate marks on labour-force participation rate, and weak scores on old-age dependency ratio. Economic weaknesses have historically reflected the impact of net emigration on declines in the working-age population. In addition, high structural unemployment is a credit-rating constraint, although unemployment is seen moderating to 12.4% on average in 2022, before 12.1% in 2023 and 12.0% in 2024, from the 14.8% of 2021. The GDP per capita of Greece is low under euro-area standards but substantively higher than that of sovereigns in Greece’s ‘bb+’ peer group. In addition, low disposable income of households compared with final consumption is a social consideration, while a comparatively elevated level of low-income jobs and prevalence of small and medium-sized enterprises weigh on the tax base while raising poverty and social exclusion among vulnerable groups. Greece performs moderately on skills of the workforce but strongly with respect to healthy life expectancy, according to the World Economic Forum’s 2019 Global Competitiveness Report9. In the QS assessment of Greece’s ‘social risks’, Scope evaluates this qualitative analytical category as ‘weak’ compared with the credit’s sovereign peers.

      Under governance-related factors under the CVS, Greece presents moderate scores on the World Bank’s Worldwide Governance Indicators (WGIs). Despite lagging peers in the euro area on governance, the reform agenda since 2017 has resulted in some improvement on the WGIs. Ongoing reform has supported an improvement in institutional strengths and has brought progress in areas such as tax administration and compliance, the judicial system, public administration, and anti-corruption. Since July-2019 legislative elections, Greece has experienced a period of comparative political stability, supported by an absolute majority in parliament held by the New Democracy government of Prime Minister Kyriakos Mitsotakis. Ahead of general elections by July 2023, support for incumbent New Democracy has declined according to opinion polling, lifting likelihood of difficult coalition negotiations being needed after elections and raising political uncertainty. In the QS assessment of Greece’s ‘institutional and political risks’, Scope evaluates this qualitative analytical category as ‘neutral’ against Greece’s ‘bb+’ indicative sovereign peer group.

      Rating Committee
      The main points discussed by the rating committee were: i) institutional support; ii) debt and budgetary outlook; iii) structural reform and EU funds; iv) debt structure; v) non-performing loans and financial stability; vi) structural economic weaknesses; vii) election outlook; and viii) peers considerations.

      Rating driver references
      1. European Central Bank – The Transmission Protection Instrument 
      2. European Commission – Financial assistance to Greece 
      3. Bank of Greece, Evolution of loans and non-performing loans 
      4. Hellenic Republic, “Next Generation EU”: Greece 2.0, National Recovery and Resilience Plan, May 2021
      5. Public Debt Management Agency (Greece) – Weighted Average Maturity
      6. European Banking Authority, EBA publishes the results of its 2021 EU-wide stress test
      7. IMF, 2022 Article IV Consultation–Press Release; Staff Report; And Statement by the Executive Director for Greece, June 2022
      8. Hellenic Republic Ministry of the Environment and Energy, National Energy and Climate Plan, December 2019 
      9. World Economic Forum: The Global Competitiveness Report 2019

      Methodology
      The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 September 2022), 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 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 on January 2003. The Credit Ratings/Outlooks were last updated on 10 September 2021.

      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 Fund 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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