RIO DE JANEIRO & SAO PAULO, Brazil--(BUSINESS WIRE)--Fitch Ratings has revised Agencia de Fomento do Parana's (FP) Rating Outlook to Negative from Stable. At the same time, Fitch has downgraded the company's long-term national rating to 'AA (bra)' from 'AA+(bra)'.
A full list of the rating actions follows at the end of this release.
KEY RATING DRIVERS
The rating actions on FP follow the same actions taken on its main controlling shareholder, State of Parana (Parana), on March 11, 2015. The downgrade of the national rating of Parana to 'AA(bra)' from 'AA+(bra)' reflects the state's deteriorated fiscal performance, mostly explained by lower than expected tax revenues in 2014. The operating margins reached 2.3% in 2014, lower than the 5% initially projected. The Negative Outlook reflects the challenges the state should face in 2015 to adopt measures to reduce expenses and increase collection to sustainable levels.
FP's IDRs and national ratings are equal to those of Parana. FP is the state's development fund administrator. FP fosters the economic development of the region and its 399 cities. Fitch views FP as strategic for the state, since it is an integral part of its public policies implemented by the state.
There are no formal requirements that the state provides capital injections in FP, although the agency is mostly financed by state funds. There are plans to increase third-party funding addressed to corporate loans. Fitch believes the probability of external support is high, if necessary, despite the recent capital withdrawal which did not affected their ample capitalization ratios.
In view of the fully secured portfolio, comprising the municipalities (78% of the total credit portfolio), losses in this segment tend to be minimal. As a result of FP's strategy in private lending (microcredit and financings to small companies with annual revenue up to BRL90 million), its impaired loans (D-H) were a low 0.8% (0.5% in December 2013). FP plans to achieve 25% of its credit portfolio with the private sector in 2015, from 22% in 2014. In Fitch's view, FP has the capacity to absorb some increase in delinquency levels given their relative higher income generation compared to other development agencies.
Given the characteristics of a development agency, the interest rates in FP's credit operations is lower than those charged by other institutions of the banking sector, with lower profitability ratios compared to traditional banks, but above the median of banks with the same focus. As of July 2014, FP was recapitalized with BRL150 million. Parana obtained funds from the Program of Support to Investments of the States and the Federal District (Proinveste) of Banco Nacional de Desenvolvimento Economico e Social (BNDES). In view of this, the regulatory capital returned to historical levels of high 81%, against 45% of December 2013, when BRL150 million was withdrawn from FP's capital.
Any changes in the State of Parana ratings or in its propensity to provide support to FP, or in Fitch's evaluation of the agency's strategic importance for the controller, could result in a rating review.
Fitch has taken the following rating actions on FP:
--Long-term foreign and local currency IDRs affirmed at 'BBB-'; Negative Outlook from Stable;
--Short-term foreign and local currency IDRs affirmed at 'F3';
--Support Rating affirmed at '2';
--Long-term national rating downgraded to 'AA(bra)' from 'AA+(bra)'; Negative Outlook from Stable;
--National Short-Term Rating affirmed at 'F1+ (bra)'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'National Rating Criteria' (Oct. 30, 2013).