Fitch Ratings has revised the Rating Outlook on Intercorp Peru Ltd's (Intercorp, HoldCo) to Negative from Stable, and affirmed the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-'.
The Negative Outlook reflects those of its main subsidiary, Intercorp Financial Services (IFS; BBB-/Negative) which is a material source of dividends to the holding company.
Intercorp Peru's ratings reflect the low holding company debt relative to dividends received as well as adequate liquidity and solid capital structure throughout its key operating subsidiaries.
Key Rating Drivers
Peru's Negative Outlook: A deterioration in political stability and government effectiveness has increased downside risks to Peru's ratings. Fitch expects that the weakening of Peru's political governance institutions will be difficult to reverse over Fitch's forecast period to end-2024 and that weaker governance poses greater downside risks to investment and economic growth than Fitch's expectation earlier this year. Fitch thinks that Peru's weakened investment and economic prospects, if sustained over 2023-2024 as Fitch expects, could undermine the sovereign's macro and fiscal trajectory relative to 'BBB' peers.
Structural Subordination: Intercorp is a holding company that depends on dividends from IFS (ownership of 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. 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 PEN580 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.
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;
The revision of Interbank's ratings to Stable would lead to the revision of Intercorp Peru's rating Outlook to 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.
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 
