Fitch: Grupo Sura's Recent Acquisition Announcements Neutral to Credit Quality
Fitch Ratings views Grupo de Inversiones Suramericana SA's (Grupo Sura) two recent acquisition announcements as neutral to the company's credit quality.
Through one of its subsidiaries, Suramericana S.A., Grupo Sura has agreed to acquire the insurance operations of RSA Insurance Group plc in Latin America for USD614 million. Grupo Sura plans to fund this transaction with an equity contribution of around USD320 million, financed through a mix of internal resources and debt. The price will be paid at the closing in each jurisdiction, after obtaining the regulatory approval in every country. The closing of this transaction is expected to take a maximum period of 18 months.
Also during this month of September, Grupo Sura announced the acquisition of the stake that JP Morgan SIG Holdings maintained in SURA Asset Management (SUAM), a Grupo Sura subsidiary. With this transaction, Grupo Sura increased its participation in SUAM to 71.38% from 67.05%. The total amount of this acquisition was USD267 million, Grupo Sura took USD 227 million in incremental debt to finance this transaction.
On a pro forma basis, Grupo Sura's financial leverage (measured as total debt to paid dividends ratio) is expected to reach around 3.1x at its peak in 2016 and then to decline trending to levels around 2.5x toward 2017. Fitch considers that Grupo Sura can finance the transactions without materially affecting its capital structure and liquidity. The transactions are consistent with the company's growth strategy, which includes merger and acquisitions activity as an important component. GRUPO SURA's track record of funding its inorganic growth with adequate combinations of equity and debt to maintain satisfactory credit metrics is also factored in the ratings.
Fitch views both acquisitions as positive from a strategic point of view for Grupo Sura, as it expands the group's insurance operations to other Latin American countries where the company already has a presence in other businesses. Additionally, with increasing participation in SUAM, the company increases the flow of expected dividends of one of its assets with higher credit quality and cash flow generator.
Grupo Sura's ratings reflect the average credit quality of its portfolio investment, diversification in its sources of dividends, and track record of increasing dividends received. The ratings incorporate Grupo SURA's average financial leverage in the medium term will be around 2.5x. The group and the companies that comprise its investment portfolio have maintained an aggressive inorganic growth strategy; eventual new acquisitions at Grupo Sura's level that lead to an increase in leverage on a sustained basis or in its portfolio that put pressures in the capability to pay dividends to Grupo Sura could result in a negative rating action.
Fitch currently rates GRUPO SURA and its special-purpose vehicle Gruposura Finance as follows:
--Foreign currency IDR 'BBB-' Outlook Positive;
--Local currency IDR 'BBB-' Outlook Positive;
--COP250,000 million local unsecured bonds due 2019-2049 'AAA(Col)';
--Local bond and commercial paper program, for a total combined amount of COP1.3 trillion 'AAA(col)'/'F1+(col)'.
--USD300 million senior unsecured bonds due 2021 'BBB-'.
Additional information is available at 'www.fitchratings.com'.
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