--Foreign and Local Currency Issuer Default Rating (IDR) at 'BB-';
--Long-term National Scale rating at 'A(mex)';
--Short-term National Scale rating at 'F2(mex)';
--MXN6 billion long-term Certificados Bursatiles issuances (ELEKTRA13 & ELEKTRA14) due 2016 at 'A(mex)';
--Short-term portion of Certificados Bursatiles program for up to MXN10 billion at 'F2(mex)'.
The Rating Outlook is Stable.
Elektra's ratings reflect its operation's geographical diversification; its market position both in the retail and finance business, the latter including
Grupo Elektra's retail operations are linked to those of BAZ due to its business strategy of selling on credit (approximately 61% of sales). BAZ's National Scale rating is supported by its management expertise in consumer credit, asset quality, strong liquidity and the credit risk of its portfolio. Continued growth, strength and diversification at BAZ should continue to underpin Elektra's ratings. The ratings also consider the controlling ownership by the
KEY RATING DRIVERS
Retail Sales Stabilizing
Revenue decline in the Mexican retail business during the last few quarters seems to be stabilizing. For the last 12 months (LTM) ended
Elektra's second-quarter 2012 acquisition of AEA, a payday lender provider with operations mainly in
BAZ Supports Elektra's Ratings
BAZ's ratings consider the bank's robust franchise in its main market, consumer loans, giving it a considerable competitive advantage, as well as its high and stable interest margins. Furthermore, they incorporate the bank's adequate ability to absorb losses, its solid funding structured through an ample, stable, diversified and low-cost base of core customer deposits. Its adequate capitalization ratios despite the strong growth of its loan portfolio in recent years also support the ratings.
Nonetheless, Fitch considers that BAZ has shown deterioration in its asset quality metrics, particularly in non-performing loans, which have reached post-2009-crisis levels. Similarly, BAZ shows lower profitability levels as of year-end 2013 and
Leverage Expected to Decline Gradually
The retail operation's gross leverage (excluding BAZ and other Latin American financial businesses) is expected to decline gradually as a consequence of improved results from both retail and AEA and expectation of stable debt levels. Fitch estimates that total adjusted debt-to-EBITDAR and net adjusted debt-to-EBITDAR (
Factors that may, individually or collectively, lead to positive rating actions include a sustained decrease in adjusted leverage and adjusted net leverage to levels of about 3.5x and 3.0x over time, respectively, due either to an increase in retail sales and EBITDA or through debt reduction. Other factors would be a strengthening of the bank's creditworthiness coupled with stabilization and recovery of the retail operations' revenue and cash flow dynamics.
Future developments that may, individually or collectively, lead to negative rating actions include the prospect of further deterioration in leverage from current levels, a breach of covenants, an accelerated increase in debt, without a corresponding increase in EBITDA at the retail division or at AEA, as well as a deterioration in Banco Azteca's creditworthiness.
Fitch currently rates these entities as follows:
--National long-term rating 'BBB+(gtm)';
--National short-term rating 'F2(gtm)'.
--National long-term rating 'BBB(pan)';
--National short-term rating 'F3(pan)'.
--National long-term rating 'A-(mex)';
--National short-term rating 'F2(mex)'.
Intra Mexicana, a subsidiary of Grupo Elektra
--MXN2.5 billion Certificados Bursatiles Fiduciarios issuance (DINEXCB-12) 'AA-(mex)vra'.
Additional information is available at 'www.fitchratings.com'.
--Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage,
--National Scale Ratings Criteria ,
--'Evaluating Corporate Governance',
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
National Scale Ratings Criteria
Evaluating Corporate Governance
Alberto Moreno, +52 81 8399-9100
Source: Fitch Ratings
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