Sura Asset Management’s Credit Profile Strong Enough To Warrant One Of The Highest Ratings In Colombia, Says Fitch

Fitch Ratings has affirmed SURA Asset Management’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB+’ and the rating outlook is stable. Fitch has also affirmed the rating for Sura Asset Management Finance BV’s guaranteed bonds at ‘BBB+’.

Sura Asset Management’s IDRs and senior debt ratings reflect the company’s strong credit profile based on its leading regional franchise, consistent performance, stable operating environment, diversified, stable earnings, sound leverage and debt service ratios, ample expertise and sound risk management. Fitch’s view of Sura Asset Management’s creditworthiness is tempered by the challenges to diversify its revenue source from mandatory to voluntary businesses, slower regional growth and exchange rate volatility. While Fitch acknowledges Sura Asset Management’s importance to its parent (Grupo de Inversiones Suramericana; rated ‘BBB/ROS’) the potential support from its parent was not considered for these ratings.

Sura Asset Management’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 if 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 (7% of the EBITDA, 21.3% of the total assets under management [AUM]) compared to Sura Asset Management’s total business volume. Nevertheless, Sura Asset Management’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.

Sura Asset Management 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 $103 billion of AUM at December 2015.

In spite of slower growth and exchange rate volatility, Sura Asset Management maintained a sound performance during 2015 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. Nevertheless, profitability remained sound at 2.2% ROAA at December 2015, while EBITDA/fee revenues stood at 68%.

Five out of the six countries where Sura Asset Management operates are investment grade and over 85% of its EBITDA is generated in countries with a country ceiling of ‘A-‘ or better. Economic growth in most of these countries remains positive, although somehow stressed over the past few years, and labor markets show resilience while salaries continue their growing trend. Demographic trends signal the need for individual savings pension plans and there is political consensus and stability on MPFMs regulation.

Excluding exchange rate variations, Sura Asset Management’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 Sura Asset Management’s revenues stems from the mandatory business (about 90% of its EBITDA) and has shown remarkable stability.

Sura Asset Management’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 cash dividends only – stood in the 2.0x-2.5x range and 6.5x-8.0x range respectively since 2013; both metrics bode well compared to similar companies.

In spite of being a relatively young company, Sura Asset Management benefits from the long track record and expertise of its preceding companies as it acquired ING’s MPFM business. Sura Asset Management made additional acquisitions and controls the third largest player in the region’s oldest MPFM market (Chile). Fitch believes Sura Asset Management’s substantial presence in the most mature market creates a unique perspective and insight on the industry and its future development.

Sound Risk Management: Sura Asset Management’s sound investment policies allow the company to perform at par or better than its peers. At year-end 2015 (YE15), most of the funds managed by Sura Asset Management’s subsidiaries outperformed their benchmarks. Sura Asset Management’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.

Sura Asset Management Finance BV Senior Guaranteed Bonds

Sura Asset Management Finance BV’s senior guaranteed bond issuance maturing in 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.

Sura Asset Management Finance BV’s senior guaranteed bonds rating would move in line with that of Sura Asset Management.

Ratings Sensitivities

SURA Asset Management S.A.’s (Sura Asset Management) IDRs, are sensitive to a change in Fitch’s assumptions around its EBITDA generation. Sura Asset Management’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).

Should Sura Asset Management’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.

Fitch has affirmed the following ratings:

Sura Asset Management

• 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’.

Sura Asset Management Finance BV

• Senior guaranteed bonds at ‘BBB+’.

The preceding has been edited from a statement issued by Fitch Ratings.