beyondbrics

photo: Bloomberg

When Grupo Aval, Colombia’s biggest banking group, said in July 2010 it was buying BAC-Credomatic, Central America’s leading credit card issuer for $1.9bn, Moody’s winced. It put Banco de Bogotá, Grupo Aval’s principal asset, on notice of a possible downgrade.

But a year after the deal was completed, the ratings agency has changed its tune.

“After six months we could see that asset quality ratios were stable or even decreasing in some cases,” says Felipe Cavallo Mendoza, Moody’s analyst. “We had a bank that was more diversified.”

At first, Mendoza told beyondbrics, the deal raised a host of questions.

“We didn’t know how they were going to acquire it. And [there was] a very basic question – why was a commercial bank suddenly buying a retail bank?”

Moody’s had been rating Banco de Bogotá since 1995 and valued its status as a commercial lender to Colombia’s biggest companies, its stable core base and general “boringness”, Cavallo says.

Suddenly, Grupo Aval – which controls a third of Colombia’s banking assets via Banco de Bogotá, Banco Popular, Banco de Occidente and Banco AV Villas – was making the biggest-ever foreign acquisition by a Colombian company.

Now Moody’s has assigned Grupo Aval its first long-term and short-term local and foreign currency issuer ratings of Baa3 and prime-3l. Here is its rationale:

Grupo Aval maintains a strong track record of intrinsic financial performance that is based on dividend income from its operating subsidiaries, primarily Banco de Bogotá (C-/Baa2 stable), which contributed approximately 62% of assets and 51% of the holding company’s dividend income as of year-end 2010.

“Basically, Banco de Bogotá acquired the bank with a capital injection from its owner… so after the deal was done the bank’s capital ratio went back to where it had been,” Cavallo says.

Analysing Banco de Bogotá’s sister banks for the first time, Cavallo says they were all “positive stories”.

Banco de Occidente accounted for about 19 per cent of assets and 24 per cent of dividend income, Banco Popular 13 per cent and 10 per cent, and Banco AV Villas 7 per cent and 9 per cent, respectively.

In spite of its positive assessment, Moody’s warned that any further acquisitions could threaten Grupo Aval’s financial performance.

That’s unlike to deter Luis Carlos Sarmiento, Grupo Aval’s majority owner, who has made no secret of his intention to make further acquisitions – putting him in step with the prevailing, opportunistic mood among cash-rich corporations.

Many Colombian groups are looking abroad, most notably Grupo Sura, which is finalising its $3.5bn takeover of ING Group’s Latin American pensions and insurance assets.

And foreigners are eager for a piece of Colombia’s fast-growing markets. Chile’s CorpBanca recently planted a flag in Colombian territory with its $1.2bn purchase of Santander of Spain’s Colombian unit, and the sale of a 3 per cent stake to Grupo Santo Domingo, one of Colombia’s biggest conglomerates; Canada’s Scotiabank paid $1bn for a majority stake in Banco Colpatria; and Banco de Credito of Peru’s purchase of a controlling stake in Colombian brokerage Correval.

Cavallo says Colombian corporates’ current bout of acquisitiveness might be thanks in part to increasing integration between the Andean nations, with banks “following their clients”; and to Colombia’s damaging political row with neighboring Venezuela in 2008, which forced Colombians to cultivate new markets, and fast.

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