OREANDA-NEWS. Fitch Ratings has upgraded the foreign- and local-currency long-term Issuer Default Ratings (IDRs) of Unifin Financiera, S.A.B. de C.V. Sofom E.N.R. (Unifin) to 'BB' from 'BB-'. Fitch has also affirmed the short-term IDR at 'B'. Its long- and short-term National Scale ratings were also upgraded, to 'A(mex)' from 'A-(mex)' and to and 'F1(mex)' from 'F2(mex)' respectively. The Rating Outlook on the long-term ratings is Stable.

A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

IDRs, NATIONAL SCALE AND SENIOR DEBT RATINGS
Unifin's upgrade is driven mainly by the enhancement of its capital structure and the positive effects on the overall company profile of the Initial Public Offering (IPO) that occurred in May 2015. Recently raised capital has strengthened capital metrics while also improving concentrations relative to equity. Ratings also consider Unifin's sound leasing franchise and its strong ability to consistently generate earnings. Fitch also incorporates the entity's adequate business know-how and legal resources for collection purposes which have allowed it to manage aggressive growth in the past without a general deterioration of the total portfolio. Ratings continue to be constrained by the company's improving but still concentrated funding structure.

Unifin's recent IPO, which raised new equity of about MXN1.93 billion, relieved previously stressed capital ratios. As of March 2015, capital-to-assets stood at 9.8%. Post-IPO capitalization reached almost 18.7%. Fitch believes that the company's capital strength will slowly decrease as a result of its ongoing aggressive growth strategy, although this pressure should partly be mitigated with internal capital generation. After the recent capitalization, Unifin projects to maintain capital indicators in the two-digit range.

Unifin's performance has been robust throughout the market cycles and consistent with the risk profile of its clients (SMEs). The entity's results have been driven by its reasonable interest margin and well-managed funding costs, while total portfolio growth has progressively made its operational cost base more efficient. However, profits are somewhat overestimated by the entity's low loan reserve coverage. In the past four years, operating ROA and ROE averaged 5.4% and 52.0%, respectively. At first quarter 2015 (1Q15), they stood at 12.0% and 120.6%. Outstanding 1Q results were boosted by two non-recurring events and Fitch has adjusted indicators from this extraordinary income. Adjusted figures as of March 2015 stood at 4.7% and 47.2% respectively..
Unifin adjusted non-performing loan (NPL) ratios have shown some volatility in the past, mainly due to the high concentrations by debtor. However, the significant growth in the past years has not resulted in a general deterioration of the asset quality, given Unifin's adherence to its credit policy and its adequate collection practices. The latter has resulted in almost no written-off loans for the company. The asset quality has also benefited from the company's ownership of the leased assets and the solid legal schemes to repossess them (personal liabilities of the client's top management through the depositary legal figure), which Fitch believes partially offsets concentration risks.

Although Unifin has diversified its funding sources in the past years, it stills holds important concentrations in market debt issuances. The company has financed an important proportion of its growth through securitizations, private (14% of its total interest-bearing liabilities) and public (28%). In 2014, the entity accessed unsecured international market debt accounting for 39% of its interest-bearing liabilities. Additionally, it has reasonable access to credit facilities from national and international development banks, and to commercial banks, which jointly represent MXN4,500 million (almost 50% unused). Fitch considers Unfin's business model will continue privileging securitization as the main funding source.

As a result of the global debt issuance the entity increased the average maturity of its financial liabilities. As of March 2015, almost 81% of the interest-bearing liabilities mature between three and five years. Fitch believes this partially mitigates refinancing risk arising from the entity's high reliance on market securitizations, its aggressive asset growth plans, and the bullet nature of most of its market-driven funding. The latter is also partially offset by the flexibility provided by the current portfolio securitizations.

RATING SENSITIVITIES

IDRs, NATIONAL SCALE AND SENIOR DEBT RATINGS
Ratings could be downgraded in the event of a consistent weakening of the capital-to-assets ratio adjusted by the unreserved portion of the impaired portfolio (as calculated by Fitch) to below 11.5%, which could arise from accelerated growth and/or weaker profitability. Downside potential could also arise from a material deterioration of asset quality metrics or risk concentrations (top 20 concentrations above 2.0x equity).

A scenario for an upgrade has a low probability of occurring in the foreseeable future, given the risks and challenges from Unifin's aggressive projected growth strategy. However, ratings could be upgraded if tangible equity ratios are sustained over 10%, the funding profile is substantially enhanced (i.e. diversification, length and staggering of debt maturities), while the entity maintains its top 20 concentrations below 1x equity.

The rating actions are as follows:

--Long-term foreign and local currency IDRs upgraded to 'BB' from 'BB-';
--Short-term foreign and local currency IDRs affirmed at 'B';
--National Scale long-term rating upgraded to 'A(mex)' from 'A-(mex)';
--National Scale short-term rating upgraded to 'F1(mex)' from 'F2(mex)';
--Long-term senior unsecured notes upgraded to 'BB' from 'BB-';

The Rating Outlook is Stable.