RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has today placed Agencia de Fomento do Estado do Rio de Janeiro S.A.'s (AgeRio) ratings on Rating Watch Negative. A full list of rating actions follows at the end of the release.
KEY RATING DRIVERS - IDRS, NATIONAL RATINGS, SUPPORT RATINGS
The rating action mirrors the recent action on Agerio's parent, the State of Rio de Janeiro (ERio, Long-Term Foreign Currency and Local Currency IDRs 'B+'/Rating Watch Negative), which was taken following a missed debt service payment by ERio. It reflects the downside risks with respect to ERio's capacity to support AgeRio, should the need arise. (For more details see 'Fitch Places State of Rio de Janeiro on Rating Watch Negative', dated May 25, 2016 at 'www.fitchratings.com'.)
AgeRio's ratings are driven by expected support from ERio and are aligned with those of its parent. Fitch views AgeRio as strategically important to ERio, as it acts as the state's development arm and implements its economic development policies. A track record of frequent capital injections by ERio, most recently in the second half of 2015, reinforces Fitch's view. ERio controls 99.99% of AgeRio. Furthermore, by state law ERio's stake in AgeRio's voting shares cannot fall below 51%, and it is the financial agent or administrator of three state funds. Fitch does not assign a Viability Rating to AgeRio, as it is a development agency.
As of December 2015, AgeRio remained highly capitalized with a total regulatory capital ratio of 75.30% (70.95% in December 2014). The development agency's overall profitability fell but remained adequate, as a solid increase in fee income broadly offset a large increase in loan impairment charges. Average ROA stood at 1.07% (1.49% in December 2014). In the same period, AgeRio's impaired loans classified in the D-H range of the central bank's risk scale rose to 6.54% of total loans (5.37% in December 2014), while impaired loan coverage by reserves rose significantly to 223.9% (89.67% in December 2014).
IDRS, NATIONAL RATINGS, SUPPORT RATINGS
Changes in Parental Support: AgeRio's ratings are linked to those of ERio. In case of an additional negative rating action on ERio, AgeRio's ratings would be subject to a review to assess this rating action's impact on the overall creditworthiness of AgeRio. This, in turn, could lead to a negative rating action on the development agency.
Fitch has placed the following ratings for AgeRio on Rating Watch Negative:
--Foreign and Local Currency Long-Term IDRs 'B+';
--Foreign and Local Currency Short-Term IDRs 'B';
--Long-term National Rating 'A-(bra)';
--Short-term National Rating 'F1(bra)';
--Support Rating '4'.
Additional information is available on www.fitchratings.com.
Global Bank Rating Criteria (pub. 20 Mar 2015)
National Scale Ratings Criteria (pub. 30 Oct 2013)