Fitch Affirms Financiera de Desarrollo Nacional's FC IDR at 'BBB'; Outlook Stable
Fitch Ratings has affirmed Financiera de Desarrollo Nacional S.A.'s (FDN) foreign currency long-term Issuer Default Rating (IDR) at 'BBB', local currency long-term IDR at 'BBB+', and Support Rating Floor (SRF) at 'BBB'. The Rating Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
FDN's ratings are aligned with those of the sovereign, reflecting Fitch's assessment of the Colombian government's willingness and capacity to provide timely support to FDN if needed. Although the Colombian government does not explicitly guarantee FDN's liabilities, Fitch views the entity as an integral arm of the state given its status as a Special Official Institution tied to the Ministry of Finance and Public Credit (which held 68.0% of shares at June 2015) and FDN's key role in structuring and mobilizing financing for the Fourth Generation (4G) national highway plan and other high profile infrastructure projects.
FDN, formerly Financiera Electrica Nacional, expanded its scope of activities by government decree in 2011 from energy projects financing to the financing of infrastructure projects in all sectors of the economy. To meet this expanded mandate, FDN has undergone a process of institutional capacity building. FDN anticipates that it will begin to disburse its first credit under its new mandate by year-end 2015.
During 2015, FDN made significant progress in the consolidation of its new organizational structure as well as the development of its human resources, financial products, credit underwriting and risk policies. This included changes to its governance structure subsequent to the entry of new shareholders in 2014 and 2015, International Finance Corporation, Corporacion Andina de Fomento and Sumitomo Mitsui Banking Corporation (which together held 32% of shares).
FDN's financial profile and performance continues to reflect its commercial inactivity to date. Its profitability in recent years has been supported by the reversal of reserves against a steadily contracting legacy loan portfolio. As opportunities for future reserve reversals are limited, FDN's future performance depends largely on the timely closure of new transactions. Given the significant lead time required to bring large-scale projects to financial closure, pipeline management represents a key challenge.
At June 2015, FDN reported no financial liabilities and therefore recorded a strong capital position equivalent to 97.3% of total assets. The scale and complexity of the 4G program create potential for delays in project approval by the National Agency of Infrastructure, financial closure and disbursement.
FDN's assets consisted primarily of its securities portfolio (61.0%) made up almost exclusively of Colombian sovereign bonds and certificates of deposit at regulated local banks. Its steadily amortizing legacy loan portfolio (19.3% of assets) registered no non-performing loans at June 2015. Moreover, FDN continues to hold significant levels of cash (13.1% of assets) related to the recent capital injections.
The Stable Outlook is in line with Fitch's outlook of the sovereign.
IDRS, NATIONAL RATINGS AND SENIOR DEBT
As development bank that is majority owned by the state, FDN's creditworthiness and ratings are directly linked to those of the sovereign. Hence, its ratings should move in line with any potential change in Colombia's ratings.
Fitch has affirmed the following ratings:
Financiera de Desarrollo Nacional S.A.
--Foreign currency long-term IDR at 'BBB'; Outlook Stable;
--Foreign currency short-term IDR at 'F2';
--Local currency Long-term IDR at 'BBB+';
--Local currency short-term IDR at'F2';
--Long-term national scale rating at 'AAA(col)'; Outlook Stable;
--Short-term national scale rating at 'F1+(col)';
--Support Rating at '2';
--Support Rating Floor at 'BBB'.