Fitch Ratings has affirmed Intercorp Peru Ltd's (Intercorp, HoldCo) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-' and its senior unsecured notes at 'BBB-'.
The Rating Outlook is Stable.
Intercorp's ratings reflect the strength of its main subsidiaries, Intercorp Financial Services (IFS, BBB-/Stable) and InRetail Peru Corp. (InRetail Peru, not rated), which are the holding company's primary source of dividends. IFS has leading business position in the financial services sector while InRetail Peru operates in multiple resilient consumer segments, which bodes well for cash flow stability supporting the group's medium-term growth strategy in the country. The 'BBB-' ratings also reflect low holding company debt relative to dividends received as well as adequate liquidity and solid capital structures throughout its key operating subsidiaries.
Key Rating Drivers
Structural Subordination: Intercorp is a holding company that depends on dividends from IFS (70.6%) and InRetail Peru (71.5% indirectly) to service its own financial obligations. Fitch expects IFS to account for about 68% of the dividends received by the holding company while InRetail Peru should account for 25% and the education segment for the balance. These percentages compare with around 90% and 10%, historically.
The improved dividend diversification is a result of the strong performance of InRetail Peru's pharmacies and supermarkets during 2020 and 2021. The group's demonstrated financial discipline both at the holding company level, as well as its subsidiaries, has been incorporated into the ratings, and mitigates the risk of a substantial increase in operating company debt and the structural subordination of debt at the holding company.
Solid Financial Services Dividend Stream: The ratings are supported by the quality of the dividends received from IFS and the likelihood that they will be sustained in the medium term. Fitch expects dividends to Intercorp from IFS to be around PEN540 million to 580 million per year in the near term. This is an increase from PEN454 million in 2021. These dividend levels compare with PEN847 million of net debt at IFS as of Dec. 31, 2021. Dividends distributed during 2021 by IFS were impacted by a one-time, pandemic related, decrease in dividends IFS received from Banco Internacional del Peru S.A.A. (Interbank, BBB/Stable). In addition to Interbank, IFS operates in the insurance and wealth management services, through its subsidiaries, Interseguro and Inteligo.
Increasing Retail Dividend Contribution: Intercorp's controlling stake in InRetail Peru also supports the ratings. Intercorp received PEN270 million in dividends from InRetail Peru in 2021, an increase from PEN60 million to PEN70 million in the last couple of years. Fitch expects dividends to be around PEN260 million in the future as a result of InRetail Peru's strong operating cash flow.
InRetail Peru is a leading multiformat retailer in Peru with operations in food and pharma segments as well as in shopping malls. The food and pharma segments proved to be very resilient to the economic crisis and contribute to around 85%-90% of InRetail Peru's consolidated EBITDAR with the balance coming from the real estate segment. As of Dec. 31, 2021, InRetail Peru's net adjusted debt to EBITDAR was 4.3x. Debt for this segment also includes debt related to 22 shopping malls owned by InRetail Shopping Malls.
Adequate Capital Structure: Fitch expects net leverage at the holding company level, measured by HoldCo debt/cash distribution to be around 2.0x in the next two years. This compares with 2.2x in 2021. As of Dec. 31, 2021, total consolidated net adjusted debt was PEN12.5 billion, with PEN1.2 billion at IFS, PEN9.8 billion at Intercorp Retail and PEN1.8 billion at HoldCo.
Economic Deceleration in Peru: The Peruvian economy grew 13.3% in 2021, beating Fitch's expectation of 11.9% growth. This result was pushed by higher private investment and public consumption. These factors contributed to GDP reaching pre-pandemic levels, before the coronavirus pandemic caused an 11.0% decline in 2020. Fitch projects economic growth of around 2.5% in 2022, largely affected by the political climate and industry-level policy uncertainties, stimulus withdrawal and a lower base effect. Inflation is also expected to remain at 3.8% in 2022compared to 6.4% in 2021.
Derivation Summary
Intercorp's ratings reflect the credit quality of its dividend income streams, diversification in the sources of dividends as well as an adequate capital structure and strong financial flexibility. Intercorp's ratings also incorporate the structural subordination of the holding company's debt to the debt at its operating companies.
Intercorp compares well to Grupo de Inversiones Suramericana S.A.'s (Grupo Sura, BB+/Stable). Intercorp benefits from stronger quality of dividend income and more robust capital structure. These strengths are partially offset by Grupo Sura's broader business and geographic diversification.
Key Assumptions
Annual received dividends of around PEN800-825 million during in 2022-2023;
Annual investments in subsidiaries of around PEN400-420 million during 2022-2023;
Annual dividends payments of around PEN120-130 million during 2022-2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The perception of a strong credit quality of InRetail Peru;
Net debt to received dividends below 2.5x combined with increased diversification of dividends on a sustained basis;
An upgrade of Interbank's ratings leading to an upgrade of IFS, which is unlikely given the current sovereign rating of Peru at BBB/Stable.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of Interbank's rating leading to a downgrade of IFS, including actions originated from a sovereign downgrade of Peru;
The perception of a weaker credit quality of InRetail Peru;
Increase in net debt/dividends received at IFS to more than 2.5x;
Net debt to received dividend above 3.5x on a sustained basis.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
Liquidity and Debt Structure
Adequate Liquidity: Fitch views Intercorp's liquidity as adequate supported by strong cash distribution from subsidiaries, comfortable amortization profile and adequate cash on hand. As of Dec. 31, 2021, the company had around PEN112 million in cash on hand on the holding company level while cash distribution from subsidiaries totaled PEN808 million.
Total debt summed up to PEN1.8 billion at the Holdco level and was mainly comprised of long-term senior unsecured notes including USD325 million due in 2029, PEN300 million (USD82 million) due in 2029 and PEN300 million (USD82 million) due in 2030
Issuer Profile
Intercorp is a holding company with subsidiaries operating in the financial services, retail (including shopping malls) and education industry in Peru. Its cash flows are primarily generated by dividends from subsidiaries.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
INTERCORP PERU LTD 