Fitch Affirms Grupo Aval Acciones y Valores S.A. at 'BBB-'; Outlook Stable
NEW YORK -- January 17, 2013
Fitch Ratings has today affirmed Grupo Aval Acciones y Valores S.A.'s (GA)
Viability Rating (VR) at 'bbb' and its Issuer Default Ratings (IDR) at 'BBB'.
The Rating Outlook is Stable. A complete list of rating actions follows at the
end of this press release.
GA's ratings reflect its strong competitive position, sound financial
standing, sustained operating performance, diversified franchises, M&A
experience and robust asset quality. Fitch's view of GA's creditworthiness is
tempered by its increased double leverage and higher debt service.
GA's ratings would be underpinned by higher capital levels, a sustained
performance at each operating company (i. e. maintaining asset quality and
reserve coverage) and stronger debt service coverage ratios.
On the other hand, a substantial increase in the group's leverage or a decline
in the dividend flows from the operating companies would be credit negatives
for GA as they would hinder its ability to serve its debt.
After a preferred shares issue during 2011, GA's capital and that of each
individual bank improved. On an unconsolidated basis, GA's double leverage is
moderate (1.06x at June 2012) but expected to slightly increase after the
completion of the acquisition of BBVA Horizonte, a leading pension fund
management company in Colombia; expected to happen during 2013. The recent
increase of its long term debt have somehow eroded its historic high debt
service coverage ratios; although, still consistent with its current rating.
According to Fitch's calculations (assuming a conservative dividend growth
scenario) and after the issuance of USD 1bln on medium term debt last year,
the EBITDA to interest ratio decreased to the 7x - 8x range and its debt to
EBITDA ratio increased to the 2.5 - 3.5x range. Worth mentioning is that
current third party financial debt have an adequate weighted average tenor of
almost 6 years; while related parties debt represent around 20% of total
The expected increase on the dividend flows from the main operating
subsidiaries and the possible inclusion of dividends from the pension fund
business to be acquired may result in a steady enhancement of such metrics in
the medium term under the absence of new financial debt. Last but not less
important, GA manages a sizable portfolio of liquid assets that may be used to
fund additional acquisitions or cover unexpected shortfalls on its revenue
GA attains - through a multi-brand strategy - a 30% market share in Colombia
and a sizable presence in Central America. GA's individual banks have quite
different strengths but the consolidated group is a sound all-around
competitor boasting adequate growth and profitability.
Driven by the consistent performance of its operating companies, as well as
its relatively moderate leverage at the holding company level, GA enjoys a
well-diversified balance sheet with a moderate risk profile and a consistent,
above average profitability.
GA's banks maintained their good performance reflecting their structural
strengths, adroit risk management, and sound core earnings. Operating costs
were curbed but are now structurally higher while loan loss provisions
declined in relative terms. Overall efficiency declined compared to historic
levels; accordingly, profitability declined but remains at very good levels.
Operating in a concentrated market with strong local players, the banks of
Grupo Aval have established specialized franchises in their respective niche
markets. Aiming to maintain its market share, the group does not currently
plan to consolidate its banks.
After numerous acquisitions and mergers at home, GA took a bold step by
acquiring BAC-Credomatic (BAC), a well-managed consumer bank with presence in
six Central American countries. By adopting a balanced approach, empowering
the local management but implementing tight controls, the transition was
Owing to its diversification and to specific strengths within each bank (e. g.
low-risk portfolio, payroll lending, and sound credit process), asset quality
remained strong; furthermore, past due loans (PDLs) are adequately covered by
loan loss reserves.
Given its ample branch network and consumer segment growth as well as the lack
of economies of scale caused by the multibrand strategy, GA's efficiency,
which compares well to that of local competitors, is below its regional peers'
average. Improvement, while possible, is not expected to be very rapid.
Fitch has affirmed GA's ratings as follows:
--Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-'; Outlook
--Short-term foreign currency IDR at 'F3';
--Long-term local currency IDR at 'BBB-'; Outlook Stable;
--Short-term local currency IDR at 'F3';
--Viability rating at 'bbb-';
--Support rating at '5';
--Support rating floor at 'NF';
Fitch also affirmed Grupo Aval Limited's senior unsecured bonds:
--Senior unsecured bonds at 'BBB-'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
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New York, NY 10004
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