New York, August 24, 2022 — Moody’s Traders Service (“Moody’s”) has affirmed Operadora de Servicios Mega, S.A. de C.V., SOFOM, E.R. (Mega) Ba2/Not Prime long- and short-term international native and overseas foreign money issuer rankings, its Ba2 long-term international overseas foreign money senior unsecured debt ranking and its Ba2 long-term Company Household Ranking. The outlook stays secure.
The next rankings have been affirmed:
– Lengthy-term international native foreign money issuer ranking of Ba2
– Quick-term international native foreign money issuer ranking of Not Prime
– Lengthy-term international overseas foreign money issuer ranking of Ba2
– Quick-term international overseas foreign money issuer ranking of Not Prime
– Lengthy-term international overseas foreign money senior unsecured debt ranking of Ba2
– Company Household Ranking of Ba2
– Outlook: Stays Secure
The affirmation of Mega’s Ba2 rankings displays the corporate’s nicely established enterprise profile, centered on financing small and medium dimension corporations in Mexico, supporting its traditionally good asset high quality metrics and ample capital place traditionally enhanced by recurring earnings era. Mega has reported enchancment within the liquidity metrics over the previous two years, with debt protection ratio rising to 162% in June 2022, from 10.5% in 2019. Efforts round funding diversification and liquidity strengthening will assist to mitigate the corporate’s vulnerability to difficult funding situations and profitability headwinds. Mega’s company governance construction has laso improved following the acquisition of a minority stake by Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG) in 2017 and its standing as a regulated finance firm in Mexico, that’s topic to the Mexican Monetary Establishments’ Regulator (Comisión Nacional Bancaria y de Valores) supervision, reinforces the corporate’s greatest practices, in comparison with unregulated friends within the nation.
The ranking affirmation additionally considers the absence of maturity focus between 2022 and 2024, which offsets liquidity pressures arising from at the moment tighter market situations in Mexico. Over the previous two years, administration has been actively looking for to diversify its funding sources, together with by rising the tenor of its obligations within the home and overseas markets, and by lowering the focus on short-term financial institution traces. This technique improved its liquidity profile, and helped to keep up excessive degree of liquid belongings nicely above 100% of its short-term debt maturities all through 2022. As well as, and following the issuance of a five-year $500 million senior unsecured debt in 2020, Mega was in a position to enhance the combo of interbank amenities, lowering the focus danger, which allowed the corporate to repurchase 20% of the senior notes so far. In March 2022, Mega additionally issued a 2027 MXN3 billion sustainability bond (GFMEGA 22X) within the home market, one other supply of funding diversification that lowers its vulnerability to heigthened volatility in international markets. Mega’s low reliance on secured debt acts as an extra mitigant in opposition to weaker traders’ sentiment and gives additional monetary flexibility, if wanted.
Mega’s rankings additionally incorporate its good asset high quality metrics supported by excessive granularity of its mortgage e-book with low common ticket per buyer, that leads to low delinquency and charge-offs ranges, in comparison with friends’ common. Whereas the acceleration in mortgage development that reached 24% within the 12 months trailing June 2022 has been a priority in a situation of rising inflation and weakened financial exercise in Mexico, the corporate focuses on offering leasing merchandise to business sectors which can be extremely correlated with the Mexican exporting provide chains, primarily to the US, and which had benefited from sturdy exercise. The constant asset high quality ratios and ample ranges of reserves in opposition to mortgage losses, in comparison with friends within the section, are additionally supported by its prudent underwriting requirements. Mega have reported comparatively low ranges of nonperforming loans (NPLs) in contrast with these of its friends, that ranged between 1.7% to 2.6% of gross loans over the previous 4 years (2.3% in June 2022), in addition to monitor document of low charge-offs, beneath 0.8% of gross loans, that are shielded by an adeqaute reserve protection that reached 124% of non-performing loans in June 2022.
Then again, Mega’s core incomes era has weakened through the first six months of 2022 affected by the excessive holding of low-yielding liquid belongings and amid the upper rate of interest surroundings that pressured the price of funding. Curiosity earnings decreased 1.4% within the first six months of 2022 from a yr earlier, whereas curiosity expense grew 7.3% throughout the identical interval. Moody’s highlights that the corporate’s earnings era will stay constrained through the outlook horizon, whereas partly benefited by continued development of enterprise volumes that ought to maintain a sound commercial-sales margin. Within the first six months of 2022, one-off good points arising from the repurchase of bonds have been the principle contributor to its 1.55% internet earnings to tangible managed belongings, whereas excluding these good points, internet earnings would have been adverse.
The secure outlook on Mega’s rankings displays our view that the Ba2 will proceed to be supported by prudent danger administration and vigilant liquidity place that can stand up to present challenges within the absence of debt maturity concentrations over the outlook horizon.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward optimistic stress on Mega’s rankings might exert from progress for the lessor’s funding technique forward of its worldwide bond maturity in 2025, evidenced by its capacity to successfully refinance and renew its credit score traces with banks. Furthermore, it could be optimistic for Mega’s unsecured debtholders, if secured debt doesn’t enhance and impacts present funding combine, and the corporate moderates origination in favor of sustaining excessive liquidity buffers in occasions of difficult market situation. As well as, upward ranking actions would even be supported by enchancment in core earnings era, that might strengthen capitalization ranges and loss-absorption capability.
Downward stress on Mega’s rankings might enhance if refinancing dangers enhance within the short-term, evidenced by the corporate’s incapacity to resume its banking credit score traces within the second half of 2022 and in 2023. This situation would elevate vital issues across the refinancing dangers associated to its worldwide debt maturity in 2025. The rankings might be downgraded if the corporate’s short-term maturities protection by liquid belongings falls beneath 100%, which might reduce the progress made by the corporate by way of its liquidity profile since 2020.
On the identical time, a fabric deterioration of the lessor’s asset dangers resulting in a decline in collections, doubtlessly arising from its single borrower concentrations in riskier SMEs, and Mega’s incapacity to stabilize its core earnings era, that might in the end harm capitalization, might add additional stress to the Ba2 rankings.
The principal methodology utilized in these rankings was Finance Corporations Methodology printed in November 2019 and obtainable at https://rankings.moodys.com/api/rmc-documents/65543. Alternatively, please see the Ranking Methodologies web page on https://rankings.moodys.com for a duplicate of this system.
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Rodrigo Marimon Bernales
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