Moody's Investors Service has revised the outlook of Intercorp Peru Ltd.'s (Intercorp) to positive from stable and affirmed the Ba2 senior unsecured debt rating.
The affirmation of Intercorp's rating incorporates the relatively sound credit profile of its primary operating subsidiary, Banco Internacional del Peru-Interbank (Baa2/Baa2 positive, baa3), as well as the holding company's still limited dividend diversification despite plans to grow the insurance and retail businesses, the structural subordination, and its moderate double leverage.
The Ba2 rating is based on the relatively robust dividend contributions reflecting the strong franchise value and income generation of the holding group's main operating subsidiaries, particularly Interbank, the group's largest earnings and dividend generator, and —to a lesser extent— Intelligo (unrated), Interseguro (unrated) and Intercorp Retail (unrated).
Interbank —which contributes with 60% of Intercorp's total dividend receipts— is Peru's fourth-largest bank, with a strong focus on retail lending. Inteligo —a private banking and wealth management operation— accounts for almost 23% of Intercorp's dividends. Interseguro —an important player in life insurance and annuities— contributes with just 6% of the holding company's dividends. Intercorp Retail —a holding group with businesses that include supermarkets, pharmacies, shopping centers, and department stores— has just started paying dividends this year, contributing with 11% of total.
Moody's Ba2 rating is two-notches below the baa3 baseline credit assessment of Interbank, reflecting the structural subordination of Intercorp to the bank and its other operating subsidiaries, and its moderate double leverage (a measure of the degree to which the holding company's equity stakes are financed with debt).
As a holding company, Intercorp's rating does not incorporate any government support, unlike Interbank's deposit rating, which benefits from one notch of ratings uplift to reflect the moderate likelihood that the government will provide financial support to the bank in an event of stress. Moody's does not believe that any support provided to the bank will extend to the holding company.
Intercorp's rating also takes into account the interest coverage above 3.2 times over the last 2 years - measured by net dividends received relative to financial expenses, and also the fact that the holding group have a cash and liquid investments position that well exceed its annual debt service requirements, with a ratio above 1.5.
Intercorp has assets of $19.5 billion, net income of $145.7 million, and equity of $2.9 billion as of June 2017 on a consolidated basis. The recently announced acquisition of Peru-based Seguros Sura S.A. and Hipotecaria Sura Empresa Administradora Hipotecaria S.A. (unrated) by Interseguros will consolidate its leading position in the annuities and individual life insurance market, and will likely increase the dividend contribution from the insurance business, helping to improve Intercorp's revenue and dividend diversification.
The positive outlook is in line with the positive outlook assigned to Interbank, and considers Moody's view that Intercorp's financial performance is likely to remain strong despite indications of rising asset risks at Interbank that may pressure profitability, and therefore dividend payments, going forward.