The French State, CDC, La Banque Postale and Dexia Group have reached an agreement for the sale of 68.3% of Dexia Municipal Agency for a total consideration of € 380m. This will trigger a € 1bn realised loss for Dexia Group. Furthermore, a price adjustment provision after three years, upwards and downwards and accompanied by a limit, has been provided for.
It has been provided for that Dexia will extend to Dexia Municipal Agency some legal and financial guarantees and will benefit from a partial counter-guarantee from the French State on sensitive loans as stated by the Group's press release on 20 October 2012. The arrangement between the four parties has been structured around two
lines:
1. La Banque Postale and CDC will set up a joint-venture (as foreseen in the initial agreement), which will commercialise new financing to local authorities and hence become a competitor to Dexia Crédit Local;
2. A new entity will be created by the French State (31.7%), Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%) and La Banque Postale (4.9%) which will become the parent company to Dexia Muncipal Agency (DEXMA), "a société de crédit foncier" dedicated to the financing of the local public sector, which will be fully owned, and run it. It will also manage the industrial platform placed at the disposal of Dexia Municipal Agency and of some activities of the joint-ventures of the Dexia Group. The eligible loans granted by the joint venture will be refinanced by Dexia Municipal Agency.
This new agreement is part of the new restructuring plan that France, Belgium and Luxembourg will present to the EC by the end of March 2012.
Our View:
The transaction will have the effect of reducing the Group liquidity requirements by € 12bn. We have however no sight on how much of the other risks (litigation in France, PIIGS exposures, ...) will remain with Dexia and the final cost associated to it.
Conclusion:
We maintain our Reduce rating and € 0.1 target.