Fitch Affirms Sura Asset Management S.A. at 'BBB '; Outlook Stable
KEY RATING DRIVERS
IDRs
SUAM's ratings reflect its strong credit profile based on its leading regional franchise, consistent performance, strong operating environment, diversified, stable earnings, sound leverage and debt service ratios, ample expertise 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 diversify its revenue source from regulated to non-regulated businesses. While Fitch acknowledges SUAM's importance to its parent (Grupo de Inversiones Suramericana; rated 'BBB-/ROP' by Fitch) the potential support from its parent was not considered for these ratings.
SUAM's credit profile is strong enough to warrant one of the highest ratings in Colombia; the rating 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 to transfer resources between entities, while the business generated within Colombia is relatively small compared to SUAM's total business volume. Nevertheless, SUAM's ratings could not conceivably be very far from those of its parent given its clear corporate identity and the importance of reputation and trust in the financial services and asset management industries.
Leading Regional Franchise: SURA Asset Management (SUAM) is the leading mandatory pension fund manager (MPFM) in Latin America with presence in six countries (including the region's top four MPFM markets), a 23% market share, a customer base of over 17 million people and over \\$114 billion of assets under management (AUM) at December 2014.
Consistent Performance: SUAM maintained a sound performance during 2014 based on the stability of its core business and a continued growth of its voluntary business. While results in individual countries were generally up, the consolidated net income declined due to the impact of the conversion to USD. NI would have grown in excess of 20% at fixed exchange rates. Nevertheless, profitability remained sound at 2.5% ROAA at December 2014.
Strong Operating Environment: Five out of the six countries where SUAM operates are investment grade and 83% of its EBITDA is generated in countries with a country ceiling of A- or better. Economic growth prospects in most of these countries remain positive ? albeit slower than in the past decade ? and are coupled with improved labor markets 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 MPFMs regulation.
Diversified, Stable Earnings: SUAM's revenues are growing steadily as contributions are mandatory and fees stable. Additional products (life insurance, wealth management) provide some diversification but the bulk of SUAM's revenues stems from the mandatory business (90% of its EBITDA) and has shown remarkable stability. In addition, a real-life stress on its business in Mexico weakened the revenue stream but the company remained profitable.
Sound Leverage/ Debt Service Ratios: SUAM's debt is concentrated at the headquarter level, with a comfortable maturity structure, and is moderate when compared to the entity's EBITDA. Leverage (debt/EBITDA) and debt service (EBITDA/Interest Expenses) ratios - adjusted to consider expected dividends only - would remain below 3x and above 6x respectively in 2014-2015; both metrics bode well compared to similar companies.
Ample Expertise: In spite of being a relatively young company, SUAM benefits from the long track record and expertise of its preceding companies as it acquired ING's MPFM business. SUAM made additional acquisitions and controls the third largest player in the region's oldest MPFM market (Chile). Fitch believes SUAM's substantial presence in the most mature market creates a unique perspective and insight on the industry and its future development.
Sound Risk Management: SUAM's sound investment policies allow the company to perform at par or better than its peers. At YE13, two thirds of the funds managed by SUAM's subsidiaries outperformed their benchmarks. SUAM's 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.
SUAM Finance BV Senior Guaranteed Bonds
SUAM Finance BV's senior guaranteed bond issuance maturing on April 2024 is rated BBB+ as it is guaranteed by Sura Asset Management S.A., as well as by the holding companies of its operating subsidiaries.
RATING SENSITIVITIES
IDRs
Sustained Growth, Stable Environment: SUAM's ratings could benefit from 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 8.0x).
Subpar Performance: Should SUAM's performance decline below the industry average, so as to erode its credit metrics (debt to adjusted EBITDA above 3.5x or Adjusted EBITDA/interest expense below 6x), its ratings could be pressured downwards. In addition, an adverse change in regulation or dismal economic performance in its key markets could affect its ratings negatively. Finally, although not Fitch's base case, a severe deterioration of its parent's credit profile would weigh on its ratings as a contagion effect cannot be ruled out.
SUAM Finance BV Senior Guaranteed Bonds
SUAM Finance BV's Senior Guaranteed Bonds' rating would move in line with that of Sura Asset Management.
Fitch has affirmed the following ratings:
SUAM:
--Long-Term Foreign Currency Issuer Default Rating (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'.
SUAM Finance BV
--Senior Guaranteed Bonds at 'BBB+'.
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