Research Update: German Strategic Oil Reserves Manager Erdoelbevorratungsverband 'AAA/A-1+' Ratings Affirmed; Outlook Stable Primary Credit Analyst: Felix Winnekens, Frankfurt (49) 69-33-999-245; felix.winnekens@spglobal.com Secondary Contact: Alois Strasser, Frankfurt (49) 69-33-999-240; alois.strasser@spglobal.com Table Of Contents Overview Rating Action Rationale Outlook Related Criteria And Research Ratings List WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 22, 2016 1
Research Update: German Strategic Oil Reserves Manager Erdoelbevorratungsverband 'AAA/A-1+' Ratings Overview We equalize our ratings on Erdoelbevorratungsverband (EBV) with those on the Federal Republic of Germany, reflecting our opinion of an almost certain likelihood of timely and sufficient extraordinary government support. We are consequently affirming our ratings on EBV at 'AAA/A-1+'. The stable outlook on EBV reflects that on Germany and our belief that EBV's critical role for and its link with Germany will not change. Rating Action On Dec. 22, 2016, S&P Global Ratings affirmed its 'AAA/A-1+' long- and short-term foreign and local currency issuer credit ratings on German strategic oil reserves manager Erdoelbevorratungsverband (EBV). The outlook is stable. Rationale We equalize our ratings on EBV with those on Germany (unsolicited; AAA/Stable/A-1+), since we believe that there is an almost certain likelihood that EBV would receive timely and sufficient extraordinary support from the German government in the very unlikely event of financial distress. We consider EBV to be a government-related entity (GRE), based on our view of its: Critical role for the government as its sole central stockholding entity for maintaining and managing the country's strategic oil reserves; and Integral link with the federal government due to its public status and its assigned tasks related to international government obligations. EBV's most important form of support is a very favorable financial regime enshrined in legal provisions. We currently consider that the German federal government is willing to support EBV, one of its key GREs, in practically all circumstances, and that it has sufficient financial resources to do so. We think that the German federal government has a strong propensity to support its GREs and that this is not subject to transition risk, especially in the case of EBV. EBV is Germany's vehicle to ensure compliance with its obligations under international law with respect to the strategic stockholding of oil products. Repeated geopolitical tensions in some oil-exporting countries, as well as production disruptions (as in Libya since 2011), have underlined the importance of maintaining a strategic reserve of oil and oil derivatives within the borders of a WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 22, 2016 2
Research Update: German Strategic Oil Reserves Manager Erdoelbevorratungsverband 'AAA/A-1+' Ratings country as import-dependent as Germany. As of 2014, Germany was among the importdependent countries in the EU-28, importing over 90% of its oil demand from abroad, according to Eurostat data. By law, EBV cannot be subject to bankruptcy proceedings and, in the event of liquidation, the federal government would be legally required to assume EBV's debt. Although this legal provision does not in itself guarantee the federal government's timely payment of EBV's financial obligations ( 3.2 billion as of the financial year ended March 31, 2016), any dissolution of EBV could only occur following the adoption of a new federal law. We consider that this legislation would safeguard a smooth sovereign takeover of EBV's obligations. The principal channel of sovereign support that benefits EBV is its favorable regulatory environment. EBV is legally obliged to balance its budget annually, which it can do via a flexible fee-based funding system or by drawing on an accumulated fee surplus reserve, backed by federal law. Qualified oil importers and refiners in Germany are obliged to be fee-paying EBV members. Fees are set to cover all EBV's operating, administrative, and debt-servicing costs and can be adjusted within the financial year. In our view, changes to the "Erdölbevorratungsgesetz" (Oil Stockpiling Law, OSL) to accommodate the EU Council Directive 2009/119/EC, which came into force on April 1, 2012, do not affect any of the key legislative and regulatory factors that underpin our rating on EBV. Further changes to the OSL going into effect on Jan. 1, 2017, will further strengthen EBV's financial position, especially as they will enable EBV to claim overdue member fees through a judicial officer. EBV is immune to changes in the market price of its stipulated oil reserves because, in the event of an imminent or existing crisis, EBV is required to release a portion of its reserves to the market. It sells its stocks at market prices and recovers stocks at market prices thereafter. As oil reserves are valued at their historical cost on the balance sheet, hidden financial reserves decreased to 2.5 billion as of March 31, 2016, from their peak of 13.8 billion at financial year-end 2012. As a result, these hidden reserves no longer exceed EBV's financial obligations at the current oil price level, but still provide an additional cushion for servicing financial obligations. Going forward, we expect a stabilization of hidden reserves in 2017 on the back of the recent OPEC (The Organization of the Petroleum Exporting Countries) agreement to cut oil output to stabilize oil prices. Financing and refinancing of oil reserves is raised in regular transactions in capital markets. EBV complies with the creditworthiness requirements of the Eurosystem. Outlook The stable outlook reflects that on Germany. In light of Germany's dependence on imported oil and the large portion of global reserves located in politically volatile regions, we believe that EBV will retain its strategic role for the German economy. Hence, we do not anticipate any changes to EBV's critical role for and integral link with the German government. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 22, 2016 3
Research Update: German Strategic Oil Reserves Manager Erdoelbevorratungsverband 'AAA/A-1+' Ratings The ratings could come under pressure if the government were to change the extremely supportive framework benefitting EBV, or to contemplate ways to extract parts of EBV's still strong hidden reserves. We consider this scenario very unlikely, however. In addition, any changes to Germany's sovereign rating could trigger a rating action on EBV. Related Criteria And Research Related Criteria General Criteria: Rating Government-Related Entities: Methodology And Assumptions - March 25, 2015 General Criteria: Use Of CreditWatch And Outlooks - September 14, 2009 Related Research Research Update: Germany 'AAA/A-1+' Ratings - December 16, 2016 Ratings List Rating To From Erdoelbevorratungsverband Issuer Credit Rating Foreign and Local Currency AAA/Stable/A-1+ AAA/Stable/A-1+ Senior Unsecured Local Currency AAA AAA Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420- 6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009. Additional Contact: SovereignEurope; SovereignEurope@spglobal.com WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 22, 2016 4
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