NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned international ratings to Financiera de Desarrollo Nacional S.A. (FDN). A full list of rating actions can be found at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
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 73.0% of shares at Dec. 31, 2014) 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, including the modification of its business model, its products, its organizational structure, as well as the expansion of its systems and human resources. FDN anticipates that it will begin to disburse new credits under its new mandate in late 2015.
Given the early stage of FDN's new operations, its primary challenges during 2015 will be the continuing consolidation of its new organizational structure, its suite of products, credit underwriting, and risk policies.
At Dec. 31, 2014, FDN had no financial liabilities and therefore recorded a strong capital position equivalent to 98.6% of total assets. Its capital also benefitted from the entry of new shareholders, the International Finance Corporation (IFC) and the Corporacion Andina de Fomento (CAF), which took stakes of 17.7% and 8.8% respectively in late 2014. According to the company's pipeline of potential projects, FDN may seek to raise debt funding in 2016.
The entry of IFC and CAF accompanied improvements to FDN's corporate governance, reducing the company's exposure to political risk. Previously the seven-member board of directors consisted of five government officials, including three Ministers, the new board consists of three government officials. In addition, the number of independent directors has increased from two to four. The company's revised statutes also provided for two additional board-level committees (Risk, and Remuneration & Appointments) in addition to the existing Audit, Investment and Credit committees.
At YE2014, FDN's assets consisted primarily of its securities portfolio (55.4%), its legacy loan portfolio (20.4%) and high levels of cash (19.3%) related to the recent capital injection. FDN's securities portfolio consists almost exclusively of Colombian sovereign bonds and certificates of deposit at regulated local banks. Its legacy loan portfolio primarily consists of two credits in good standing. In addition, loan loss reserves totalled 21% of gross loans and credits were secured by collateral valued at 4.8x the balance outstanding. Although portfolio growth depends on the progress of its project pipeline toward feasibility, FDN anticipates making financing commitments in 2015 for the first wave of 4G projects.
FDN's current loan portfolio consists of two corporate credits, characterized by high borrower concentration, high levels of collateralization, and long maturities with significant grace periods. One of the credits underwent a tenor extension as well as a pricing re-negotiation in 2014. Given the scale, complexity and capital intensity of projects in FDN's pipeline, Fitch expects that credit restructurings could be a feature of its portfolio over the longer term.
FDN's financial performance has been supported by the reversal of reserves against its steadily contracting loan portfolio in recent years. In 2014, earnings compared favourably with other development banks in the region despite its commercial inactivity and relatively high administrative expenditure. Given the significant lead time required to bring large-scale projects to financial closure, Fitch views FDN's future performance as sensitive to project delays, should they occur. Partly mitigating this vulnerability is FDN's income from its securities holdings and fee income for trust administration, structuring and project management.
RATING SENSITIVITIES - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
FDN's ratings are sensitive to a change in Fitch's assessment of the Colombian government's willingness or capacity to provide support, if needed.
Fitch has assigned the following ratings:
--Long-term IDR of 'BBB'; Outlook Stable
--Short-term IDR at 'F2'
--Local Currency Long-term IDR of 'BBB+'
--Local Currency Short-term IDR of 'F2'
--Support Rating of '2'
--Support Rating Floor of 'BBB'
Additional information is available on www.fitchratings.com
Relevant Research and Applicable criteria,
--Global Financial Institutions Rating Criteria, dated January 14.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria - Effective from 31 January 2014 to 20 March 2015