COLOMBIA NEWS – Colombia-domiciled Grupo Aval S.A.’s (GA, BBB/Outlook Stable) U.S. dollar preferred equity raise and debut listing on the NYSE (NYSE: AVAL) is a credit positive step that bolsters the group’s funding diversity and marks a new step in its expansion abroad, according to Fitch Ratings. While GA’s new issuance of $1.3 billion of new American depository shares (ADS) improves the company’s financial standing, it does not warrant an additional rating action as Fitch already upgraded GA and its primary operating subsidiary, Banco de Bogota (BBB/Outlook Stable) on July 21, 2014.
GA’s new issue is another recent example of Colombian banks and corporations actively tapping international capital markets to fund their growth. While bond issues have largely dominated international securities issues in the past few years, continuous growth, regulatory changes and appetite for securities issued by Colombian companies should open the doors for hybrid and capital instruments going forward.
Beyond GA’s specific business attributes, the ADR listing highlights the significant investor appetite for Colombian securities. The country has a stable operating environment, improving regulation and a group of top-tier financial institutions that are making the most of the country’s recent period of sustained economic growth.
Including Tuesday’s listing of preferred equity, GA will have raised a total of $2.5 billion thus far in 2014. GA raised approximately COP2.4 trillion ($1.2 billion) of equity in January to reduce debt and restore capital after funding Banco de Bogota’s expansion in Central America through the acquisition of Grupo Reformador and BBVA Panama in December 2013.
GA’s capital raise could be perceived as a first step towards potential new acquisition activity as integration of prior acquisitions (Grupo Reformador in Guatemala and BBVA Panama) proceeded without disruption to BAC-Credomatic’s (BAC) operations, which the company acquired in December 2010. However, Fitch believes that new opportunities may be scarce as several markets are not attractive either due to political conditions (Venezuela, Ecuador and Argentina), pricing (Peru) or scale (Brazil and Mexico). Nevertheless, smaller acquisitions in Central America or the Caribbean cannot be ruled out.
Grupo Aval embarked on an ambitious expansion abroad with its acquisition of BAC and has made subsequent investments to strengthen BAC’s regional franchise. Each time, the group followed a cautious strategy, preparing it (and its core subsidiaries) by raising most of the capital needed to expand before making the acquisitions. Thus, GA has maintained a moderate double leverage that allows for potential growth.
For Fitch’s last comment on GA, please see ‘Fitch Upgrades Grupo Aval to ‘BBB’; Outlook Stable’ and ‘Fitch Upgrades Banco de Bogota to ‘BBB+’; Outlook Stable’, available at www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
