Fitch Revises Rating Outlook on Grupo Sura to Positive; Affirms IDR at ‘BBB-‘

Fitch Ratings has revised the Rating Outlook for Grupo de Inversiones Suramericana’s (GRUPO SURA) long-term foreign and local currency Issuer Default Ratings (IDR) to Positive from Stable and affirmed the IDRs at ‘BBB-‘. Fitch has also affirmed outstanding debt ratings of GRUPO SURA and its special-purpose vehicle Gruposura Finance as follows:

GRUPO SURA 

• Foreign currency IDR at ‘BBB-‘ Outlook Positive;
• Local currency IDR at ‘BBB-‘ Outlook Positive;
• COP250,000 million local unsecured bonds due 2019-2049 at ‘AAA(Col)’; 
• Local bond and commercial paper program, for a total combined amount of COP1.3 trillion at ‘AAA(col)’/’F1+(col)’.

Gruposura Finance 

• USD300 million senior unsecured bonds due 2021 at ‘BBB-‘.

Key Rating Drivers

The Positive Outlook incorporates the expectation that the quality of GRUPO SURA’s investment portfolio will improve during the next 12-24-month period. In 2014, Fitch assigned a ‘BBB+’; Outlook Stable rating to Sura Asset Management (SUAM) as well as revised Bancolombia’s Outlook to Positive from Stable and affirmed its IDR at ‘BBB’.

GRUPO SURA’s ratings reflect the average credit quality of its investment portfolio, diversification in the sources of dividends, and track record of increasing dividends received, in Colombian Pesos (COPs). The ratings also reflect GRUPO SURA’s healthy level of cash interest coverage and liquidity.

Further incorporated in the credit ratings of GRUPO SURA is the structural subordination of the holding company’s debt to the debt at its operating companies. SUAM and Bancolombia are the two largest sources of cash flow to the holding company, accounting for 67% of the dividends received by GRUPO SURA in 2014. SUAM has a sound business profile and generates stable cash flow. It is the largest pension fund manager in Latin America with a presence in six countries. Bancolombia has operations in seven countries in Latin America and is the leading bank in Colombia and El Salvador with a market share of 23% and 30% of loans, respectively.

GRUPO SURA received COP600 billion in dividends during 2014, representing an increase of 9.5% over dividends received during the prior year. The financial and insurance segments continue to be the main source of cash dividends in 2014 and represented 79% of the company’s total received dividends. In addition to SUAM and Bancolombia, the company received 12% of if dividends from Suramericana.

In the industrial segment, dividends received from Grupo Nutresa and Grupo Argos represented 11% and 9% of cash received by the holding company during 2014. The financial services segment is expected to continue representing the bulk of the dividend flow during the next years. During 2015, GRUPO SURA expects to receive dividends of approximately COP740 billion.

GRUPO SURA ended 2014 with adjusted debt of COP1.6 trillion, including off-balance sheet obligations of approximately USD316 million of dollar-denominated debt recorded by special vehicles. The company’s financial leverage, measured by the ratio of total debt-to-dividends received was 2.7x at end of 2014, which is in line with expectations previously incorporated in the ratings. The ratings estimate GRUPO SURA’s average financial leverage in the medium term will be around 2.5x.

The company has moderate exposure to FX volatility. Approximately 45% of GRUPO SURA’s adjusted debt is dollar-denominated while its cash flow is in COPs or in other Latin American currencies. The dollar debt is composed mostly of USD300 million of international bonds due 2021, and the balance are credit loans. GRUPO SURA maintains a financial hedge to cover the coupon payments, while the moderate leverage levels and the long term of the obligation mitigate the currency risk of the principal payment.

GRUPO SURA’s dividend stream has shown low volatility in recent years which along with a manageable debt structure profile allows the company to adequately cover its debt service and dividend payments with the dividend inflows. After paying around COP320 of dividends to its shareholders, GRUPO SURA had net dividends received of COP320 billion, of which it used COP63 billion was used for its interest and principal debt service.

The company has maintained historically low levels of cash relative to its short-term debt. This is compensated for by the stable dividend income and GRUPO SURA’s ability to access alternative sources of liquidity. As of December 2014, GRUPO SURA’s combined cash on hand was approximately COP6.5 billion with short-term debt of COP45 billion. Excluding short-term debt, the next sizable debt payment amortization the company faces is around 2016 for approximately COP223 billion. Fitch views the company’s refinancing risk as low with a manageable debt payment schedule.

Also considered positively is the company proven access to international and local bond and equity markets, uncommitted credit lines of approximately USD1.4 billion and a high level of non-strategic assets, which make up GRUPO SURA’s investment portfolio, with an estimated value of USD2.1 billion versus gross debt of USD800 million. In Fitch’s view, under a stress scenario, GRUPO SURA could generate liquidity by accessing the credit markets, executing joint ventures with strategic partners, and disposing of non-strategic assets.

Key Assumptions

Fitch’s key assumptions within the rating case for the issuer include:

• Total dividends received will reach COP740 billion in 2015, led by a 50% increase in dividends received from SUAM;
• Dividends will record a CAGR between 5%-6% in 2016-2019 in COP terms; 
• Dividends from Bancolombia and SUAM will represent around 74% of total dividends received by GRUPO SURA going forward;
• Grupo SURA’s average net financial leverage during 2015 -2016 expected around 2.5x.

Rating Sensitivities

Positive Rating Actions: Future developments that may, individually or collectively, lead to a positive rating action include:

• An upgrade of Bancolombia’s IDRs; 
• Fitch’s positive review of SUAM’s credit quality due to financial performance and balance sheet strength reaching levels above expectations; 
• The positive development, above expectations already incorporated, of the regional macroeconomic environment leading to stronger than anticipated credit metrics.

Negative Rating Actions: Future developments that may, individually or collectively, lead to a negative rating action include:

• A downgrade of Bancolombia’s IDRs; 
• Deterioration in SUAM’s credit profile;
• Aggressive inorganic growth strategy that leads to a sustained increased in leverage;
• Adverse macroeconomic trends leading to weaker credit metrics.