NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+' Issuer-Default Rating for SURA Asset Management S.A. (SUAM). A complete list of assigned ratings follows at the end of this press release.
KEY RATING DRIVERS
SUAM's ratings reflect its strong credit profile based on its leading regional franchise, strong operating environment, ample expertise, diversified, stable earnings, sound leverage and debt service ratios, good operating performance and sound risk management. Also, the rating incorporates the expansion of the company on a mostly regulated business in the region and the challenges to expand its revenue source from regulated and non-regulated businesses in the region. While Fitch acknowledges SUAM's importance to its parent (Grupo de Inversiones Suramericana, rated 'BBB-' by Fitch) the potential support from its parent was not considered for these ratings.
While SUAM's credit profile is strong enough to warrant one of the highest ratings in Colombia, it is not considered to be constrained by the country ceiling as it benefits from a relatively strong, stable and growing stream of revenues from countries with a higher country ceiling. Even when the main operating companies are regulated in their home country, there is still significant flexibility towards transfer of resources between entities, while the business generated within Colombia is relatively small compared to the total.
SUAM has a leading franchise in the mandatory pension fund business. With presence in six markets, a 23% regional market share, a customer base of over 16 million people and $113 billion of Assets Under Management (AUM) is the only Mandatory Pension Fund Manager (MPFM) with presence in the region's top four markets. As is the case with other assets managers in the region, SUAM expects to expand its revenue source from its core mandatory pension fund business and where appropriate, enhance the product offering with voluntary savings products in the medium and long term. Regulatory trends towards mandatory pension fund managers in Latin America have been evolving in order to reduce fees and motivate more competition among players, a trend that Fitch expects to continue in the medium to long term.
Five out of the six countries where SUAM operates are investment grade and 88% of its EBITDA is generated in countries with a country ceiling of 'A-' or better. The economic prospects in most of this countries point to a sustained - albeit slower than in the past decade - economic growth coupled with an improved labor market and raising salaries and per capita income.
Moreover, demographic trends signal the need for individual savings pension plans and there is political consensus and stability on the MPFMs regulation. Future growth will not only depend on its franchise and the ability to leverage on its regional presence, but also, on the aforementioned demographics and economic activity trends, which are inherently away from the control of the company. Despite the former, the negative impact of these factors on its revenues tends to be moderate given the mandatory nature of the business.
In spite of being a relatively new company, SUAM benefits from the long track record and expertise of its preceding companies. SUAM acquired ING's MPFM's in the region and made additional acquisitions. SUAM controls the third largest player in the region's oldest MPFM market (Chile), while management in the other countries is also very experienced. Fitch believes SUAM's substantial presence in the most mature market creates a unique perspective and insight on the industry and its future development. Fitch expects that SUAM will be able to successfully integrate the recently acquired entities and conduct a solid and integrated business model, while, such integration may help to cross pollinize good business practices and products along its network of companies.
The mandatory nature and fee structure of this business (except for Mexico, fees are based on customers' salaries) create a very steady, stable and growing earnings base. Additional products (life insurance, wealth management) provide some diversification, but 90% of SUAM's revenues/EBITDA stem from the mandatory pension business which has shown remarkable stability. Even when the global crisis weakened the revenue stream in Mexico and the value of its investment portfolio (and hence results) in Chile, SUAM's subsidiaries in both countries remained profitable. Besides changes in economic activity (average salaries, unemployment levels, etc); SUAM's revenue stream may be affected by negative trends in the value of its assets under management (in Mexico via the reduction of their fee income based on the stock of assets under management and in other countries, given the weight of the 'encaje'- proprietary investments that mimic the performance of its assets under management).
SUAM's debt is concentrated at the headquarter level, with a comfortable maturity structure, and is moderate when compared to the entity's EBITDA. Projected leverage ratios (debt to EBITDA and fee-based EBITDA) would remain below 2.5(x) while debt service ratios (EBITDA/Interest Expenses) would exceed 10x. Adjusted leverage and debt service ratios - which consider projected cash dividends only - would be 2.6x and 7.2x respectively; both metrics bode well compared to other similar companies.
SUAM's MPFMs have consistently performed at par or above the industry average. The company's investment and risk management policies as well as its expertise and regional reach appear adequate to maintain the company's sound competitive position and moderate, healthy growth. Going forward, and after the consolidation of its expanded footprint, the current management team is expected to preserve good practices and integrate the operations in order to achieve larger economies of scale.
Given SUAM's business profile, continued growth and sustained performance - amid stable economic and regulatory environments - coupled with improved adjusted leverage (less than 2.5x) and debt service ratios (above 8x) could benefit its ratings.
Should SUAM debt levels rise beyond current projections, or should the company's operating efficiency and performance decline below the industry average, so as to erode its credit metrics (Debt/Adj. EBITDA above 3.5x or Adj. EBITDA/Interest Expense below 6x) its ratings would be pressured downwards. In addition, an adverse change in regulation or dismal economic performance in its key markets would affect its ratings negatively.
The ratings assigned by Fitch are based on the following assumptions which could - if they were no longer applicable - affect the ratings:
--SUAM will continue to operate in generally benign economic environments with only minor and/or temporary downturns in growth or employment in its key markets.
--Regulation in its key markets will remain constructive to the business in terms of prices with only minor, incremental changes that should not significantly change fee structures.
--SUAM's operating companies will continue to perform at par or better than the industry average and fully comply with all regulatory requirements.
--SUAM will continue to have the ability to declare dividends from its operating subsidiaries and ample access and flexibility to manage their liquidity.
--SUAM will continue to centralize debt at the headquarter level and will not significantly increase its financial indebtedness.
Fitch rates SUAM as follows:
--Long Term Foreign Currency Issuer Default Rating (IDR) 'BBB+'; Outlook Stable.
--Short Term Foreign Currency IDR 'F2';
--Long Term Local Currency IDR 'BBB+'; Outlook Stable;
--Short Term Local Currency IDR 'F2'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Investment Manager and Alternative Funds Criteria' (Dec. 12, 2013).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Investment Manager and Alternative Funds Criteria