Fitch Affirms SURA Asset Management S.A. at 'BBB+'; Outlook Stable.
KEY RATING DRIVERS
IDRs AND SENIOR DEBT
Despite SUAM's strong financial profile, its IDRs and senior debt ratings are highly influenced by its weaker operating environment and moderate leverage relative to higher rated international peers, as well as a limited track record under the current structure. SUAM's ratings also consider its leading regional franchise, consistent investment performance, stable earnings and cash flow, as well as its ample expertise and sound risk management. Fitch also views SUAM's leverage and debt service ratios as adequate for the current rating level.
While Fitch acknowledges SUAM's importance to its parent (Grupo de Inversiones Suramericana; rated BBB/Outlook Stable), the potential support from its parent was not considered for these ratings. Nevertheless, SUAM's ratings are linked to those of its parent given its clear corporate identity and the importance of reputation and trust in the financial services and asset management sectors.
SUAM's IDRs are one notch above Colombia's IDR because the company benefits from a sound, stable and growing stream of revenues and generates about 85% of its EBITDA in higher rated investment grade countries: Chile (IDR A/Stable), Mexico (BBB+/Stable) and Peru (BBB+/Stable). Currently, all of these countries have a country ceiling at 'A-' or better. In Fitch's view, even if the Colombian sovereign were to default, SUAM would retain its ability to service its obligations and, in the unlikely case that the sovereign attempted to impose restrictions on SUAM, it would only affect only 11% of its EBITDA (the business generated within this country compared to SUAM's total business volume). Although the main operating companies are regulated in their respective home countries, there is still some flexibility to transfer resources between entities.
SUAM is the leading mandatory pension fund manager (MPFM) in Latin America with a presence in six countries (including the region's top four MPFM markets), a 23% market share for the six countries where it operates, a customer base of about 19 million people and $135 billion of assets under management (AUM) at December 2017. The recent announcement to sell its annuities insurance business in Chile for US232 million is in line with its strategy to concentrate its core business in mandatory and voluntary saving and would not materially affect SUAM's overall strength, as the operation represents less than 3% of consolidated EBITDA. Fitch does not expect any other relevant financial impacts.
SUAM maintained sound performance during 2017 based on the stability of its core mandatory business and continued growth of its voluntary business. The consolidated net income and Fitch adjusted EBITDA grew by 3% and 19%, respectively, reflecting the moderate impact of exchange rate volatility and improved results in key individual countries. Furthermore, EBITDA/fee revenues reached a solid 61.7%, while its operating ROAA increased to 4.4% (from 4.1% at YE16) and operating ROAE at 13%, mainly due to balance sheet decrease after Peru insurance business sale.
SUAM's annuities business invests in USD-denominated bonds, which normally results in foreign exchange exposure. Excluding this currency effect, SUAM's operating income from pension and funds and net income grew steadily in 2017 (13.4% and 0.6%, respectively) due to mandatory contributions and stable fee revenues. Additional products (life insurance, wealth management) provided some diversification; however, the bulk of SUAM's revenues come from the mandatory business (about 90% of its EBITDA) and has shown remarkable stability. Lower penetration of financial services in LatAm compared to developed markets results in growing opportunities in the mandatory pension and savings industries.
SUAM's financial debt is concentrated at the parent level, with a comfortable maturity structure, and is moderate when compared to the entity's EBITDA. Leverage (gross financial debt/adjusted EBITDA) and debt service (adjusted EBITDA/financial expenses) ratios stood in the 1.5x to 3.0x range and 7.0x to 11.0x range respectively since 2014. Given the reduction (12.1% YoY) in financial debt after the prepayment made on short-term financial facilities, the key ratios stood at comfortable 2.1x and 8.0x at 2017; gross debt/adjusted EBITDA is now well below the prior year (2.9x). These metrics are consistent with a 'BBB' category rating based on Fitch's quantitative benchmarks for traditional investment managers.
SUAM's focus in emerging markets allowed it to report stronger financial metrics than its traditional investment manager peer group. SUAM's risk management policies, expertise and regional reach appear adequate to maintain the company's sound competitive position and moderate, healthy growth.
The rating assigned to SUAM's 10-year USD350 million senior unsecured fixed-rate bonds due in 2027, corresponds to the company's Long-Term IDR, considering the absence of credit enhancement or subordination feature.
SUAM Finance BV Senior Guaranteed Bonds
SUAM Finance BV's senior guaranteed bond issuance maturing in April 2024 is rated 'BBB+', as it is guaranteed by Sura Asset Management S.A., and by the holding companies of its operating subsidiaries.
IDRs AND SENIOR DEBT
The Rating Outlook for the Long-Term IDRs is Stable.
Given the limitations of the current operating environments in the main countries where SUAM operates in, a rating upgrade is not likely in the short to medium term. SURA Asset Management S.A.'s IDRs are however sensitive to a change in Fitch's assumptions around its EBITDA generation. SUAM's ratings could benefit from an improvement in its operating environments while maintaining its strong financial performance amid stable economic and regulatory environments. The ratings could also benefit from a sustained improvement in leverage and coverage ratios, specifically gross debt/EBITDA less than 1.5x and EBITDA/interest expense greater than 12.0x.
Should SUAM erode its credit metrics (debt to EBITDA above 3.0x or EBITDA/financial expense below 6.0x) its ratings could be pressured downwards. In addition, an adverse change in regulations or poor economic performance in its key markets, could affect SUAM's ratings negatively. Finally, although not Fitch's base case, a severe deterioration of SUAM's parent's credit profile would weigh on its ratings, as a contagion effect cannot be ruled out.
The senior unsecured debt would generally move in tandem with SUAM's long-term rating.
SUAM Finance BV Senior Guaranteed Bonds
SUAM Finance BV's senior guaranteed bonds rating would move in tandem with Sura Asset Management's rating.
Fitch has affirmed the following ratings:
SURA Asset Management S.A:
--Long-Term Foreign Currency IDR at 'BBB+'; Outlook Stable;
--Short-Term Foreign Currency IDR at 'F2';
--Long-Term Local Currency IDR at 'BBB+'; Outlook Stable;
--Short-Term Local Currency IDR at 'F2';
--USD350 million senior unsecured fixed rate bonds due 2027 at 'BBB+'.
SUAM Finance BV:
--Senior guaranteed bonds at 'BBB+'.