MOODYS.COM 8 DECEMBER 2016 NEWS & ANALYSIS Corporates 2 » Historic Auctions Mark Leap in Mexico's Drive to Lure Big Foreign Oil, a Credit Positive » Lukoil's Sale of Its Diamond Business Is Credit Positive » Obrascon Huarte Lain's Sale of a Stake in Its Mayakoba, Mexico, Hotels Is Credit Positive » Fosun's Proposed Sale of Ironshore Is Credit Positive Infrastructure 7 » Illinois' Passage of Nuclear Subsidy Is Credit Positive for Exelon » UK Cap on Interest Deductions Is Credit Negative for Infrastructure Issuers » Korea's Approval to Restart Nuclear Reactors Is Credit Positive for KHNP and KEPCO Banks 10 » Bank of Nova Scotia Sells HollisWealth, a Credit Negative » RBS Settlement Related to 2008 Rights Issue Is Credit Positive » Uzbekistan Proposes Broad Currency Liberalization, a Credit Negative for National Bank of Uzbekistan Sovereigns 15 » Poland's Economic Slowdown Poses Risks to Potential Growth and Fiscal Outlook » Iran Proposes Credit-Positive Reforms in Its Fiscal 2017 Budget » Uzbekistan's Smooth Presidential Succession and Policy Initiatives Are Credit Positive » China's Latent Capital Account Pressures Are Credit Negative US Public Finance 23 » Orange County, Florida, Repays Orlando's Portion of Tourist Development Tax Bonds, a Credit Positive for City Securitization 25 » Marketplace Loan ABS Would Benefit from a Bank Charter for US Financial Technology Companies RECENTLY IN CREDIT OUTLOOK » Articles in Last Monday’s Credit Outlook 26 » Go to Last Monday’s Credit Outlook Click here for Weekly Market Outlook, our sister publication containing Moody’s Analytics’ review of market activity, financial predictions, and the dates of upcoming economic releases. NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 8 DECEMBER 2016 Corporates Historic Auctions Mark Leap in Mexico’s Drive to Lure Big Foreign Oil, a Credit Positive On Monday, the Government of Mexico (A3 negative) held two successful auctions of oil assets in the Gulf of Mexico, attracting bids for eight of 10 new deepwater blocks and drawing a partner for Petroleos Mexicanos (PEMEX, Baa3 negative) on another new deepwater oil block, achieving a total success rate of 82% for the auctions. PEMEX, Mexico’s single-biggest taxpaying entity, also won a block in the Perdido basin in a partnership with the US-based Chevron Corporation (Aa2 stable) and Japan-based Inpex Corporation (A2 negative). These are the first joint ventures for Mexico’s national oil company since the 1930s. The auctions’ results are credit positive for both Mexico’s government and PEMEX. Attracting new investment will eventually help offset Mexico’s declining oil production. According to the Mexican government, the nine awards will bring $41 billion in new investment to the country’s oil industry over the long-term lives of the licensing contracts. Foreign investment in the Mexican oil industry will eventually help offset the steady decline in its production. Cantarell, the country’s biggest oilfield, has been gradually depleted over its 40 years of production, and PEMEX’s limited funding and lack of technological expertise has kept it from investing in oil production efficiently by itself. The two latest auctions were the fourth and final phase of Mexico’s first-round oil auctions (originally planned for the first half of 2016) and mark the first time that the government had awarded attractive deepwater assets. The deepwater auctions drew more interest from international oil companies than previous phases, owing largely to their better geology, better legal and fiscal flexibility for participants, and a focus on larger assets. Second-round auctions in early 2017 include mature, inland and shallow-water oil assets between the Burgos area and southern Mexico. In addition to these blocks, the Comision Nacional de Hidrocarburos (CNH), Mexico’s national oil regulator, may also auction off an unknown number of existing PEMEX projects, offering some sign of the oil company’s ability to improve its operating and capital efficiency gradually through such transfers. The newly awarded blocks offer prospective reserves of about 976 million barrels of oil equivalent (boe) in the Perdido area and 1.1 billion boe in the Salinas area. The Trion block has prospective reserves of about 500 million boe. In addition to the Chevron/Inpex/PEMEX joint venture, CNH awarded blocks to a number of major international oil companies, including China National Offshore Oil Corporation (Aa3 negative), which won two blocks, and a consortium formed by Norway’s Statoil ASA (Aa3 stable), the UK’s BP p.l.c. (A2 positive) and France’s Total S.A. (Aa3 stable). Total and Exxon Mobil Corporation (Aaa negative) won another block as a joint venture, and Malaysia’s national oil company Petroliam Nasional Berhad (A1 stable) will help develop two other blocks in partnership with smaller companies. The auctions also led to better results for Mexico’s gov