Fitch Affirms Grupo Sura's IDR at 'BBB'; Outlook Stable
A complete list of ratings follows at the end of this release.
The affirmation reflects Grupo Sura's quality of portfolio of assets, diversification in the sources of dividends, and track record of increasing dividends received. The weighted-average credit quality of dividend flow remains in the 'BBB' rating category and 'BBB-' considering structural subordination of dividends income streams.
The rating actions follow Fitch's downgrade of Bancolombia S. A. (Bancolombia) to 'BBB'/Negative Outlook from 'BBB+'/Negative Watch on Aug. 17, 2016. Fitch expects Bancolombia to represent about 22% of dividends to be paid to Grupo Sura in 2016. Fitch expects Sura Asset Management S. A. (Sura AM) which is rated 'BBB+'/Stable Outlook to remain the largest contributor of dividends paid in 2016. The rating affirmation also reflects the company's track record of balancing its aggressive growth strategy with an adequate capital structure and its ability to deleverage post acquisitions.
KEY RATING DRIVERS
Investment Portfolio Credit Quality
Sura Asset Management S. A. (Sura AM) and Bancolombia S. A. are the two largest sources of cash flow to Grupo Sura. Sura AM is rated 'BBB+'/Stable Outlook and Bancolombia is rated 'BBB'/Negative Outlook. Sura AM has a sound business profile and generates stable cash flow. It is the largest pension fund manager in Latin America, operating in six countries. Bancolombia has operations in seven Latin American countries and is the leading bank in Colombia. The other companies paying dividends to the company are the insurance company Suramericana S. A, Grupo Argos ('AA+(col)'/Stable Outlook) which is a diversified conglomerate (infrastructure, cement) and the food company Grupo Nutresa 'AAA(col)'/Stable Outlook.
In September 2015 Grupo Sura increased its controlling position in Sura AM to 71.38% from 67.05% and also announced the acquisition of RSA Insurance Group plc in Latin America. In addition, the company exercised its call option to acquire an additional 7.3% stake in Sura AM in February 2016. Fitch views these acquisitions as positive from a strategic point of view for Grupo Sura, as it consolidates its stake in the asset management business and expands its insurance operations to other Latin American countries where it already has a presence.
Business Deleverage Expected
The company's capacity to maintain strong loan-to-value (LTV) metrics is incorporated as a key rating factor. Fitch estimates LTV was at about 16% on a total debt of about USD1.4 billion. Fitch believes Grupo Sura has the flexibility to reduce leverage in the medium term to levels consistent with its rating category. The agency expects Grupo Sura's net leverage to be in the 4x to 5x range during 2016 - 2017, with a trend toward reducing leverage in the following years.
Stability of Dividends
Grupo Sura received USD296 million (COP811,872 million) in dividends during 2015 coming from Sura AM (42.4%), Bancolombia (25.8%), Suramericana (11.5%), Grupo Nutresa (9.1%) and Grupo Argos (7.5%). Fitch projects an increase of dividend of about 23% in 2016 notably because of the company's increase participation in Sura AM at 78.7% from 71.38% in 2015.
The financial and insurance segments are expected to remain the main sources of cash dividends in the medium term. Fitch expects Sura AM and Bancolombia to represent about 76% of dividend received in 2016.
Fitch's key assumptions within the rating case for Grupo Sura include:
--Total dividends received will reach COP955 billion in 2016, led by an increase in Grupo Sura's stake in Sura AM;
--Dividends will record a compound annual growth rate (CAGR) between 3% - 6% in 2017 - 2019 in COP terms;
--Dividends from Bancolombia and Sura AM will represent around 75% of total dividends received by Grupo Sura;
--Net leverage levels around 4x to 5x during 2016 - 2017;
--Interest coverage around 3x to 4x during 2016 - 2017.
Positive Rating Actions: Developments that may, individually or collectively, lead to an upgrade include the completion of the announced investments and interest coverage to around 3.5x on a sustained basis. A positive review by Fitch of Sura AM's credit quality could also lead to a positive rating action.
Negative Rating Actions:
Developments that may lead to a negative rating action include a downgrade of weighted average of dividends flow received by the company to non-investment grade. Weakening liquidity and consistent deterioration in net leverage metrics, reaching levels consistently above 5x and LTV consistently at levels above 20% - 25%, could also result in a negative rating action.
Grupo Sura's dividend stream has had low volatility in recent years, which, along with a manageable debt structure profile, allows the company to adequately cover its debt service and dividend payments with its dividend inflows. Fitch expects dividends-to-gross interest to be in the 3x to 4x range in 2016 - 2017. The company has maintained historically low levels of cash relative to its short-term debt. This is compensated for by the stable dividend income and Grupo Sura's ability to access alternative sources of liquidity.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following rating actions:
--Long-Term Foreign Currency IDR at 'BBB';
--Long-Term Local Currency IDR at 'BBB';
--COP250 billion local unsecured bonds due 2019,2029,2049 at 'AAA(Col)';
--Local bond and commercial paper program, for a total combined amount of COP1.3 trillion at 'AAA(col)'/'F1+(col)'.
--USD300 million senior unsecured bonds due 2021 at 'BBB';
--USD550 million senior unsecured bonds due 2026 at 'BBB'.