TEXT-S&P affirms Intercorp Peru Ltd 'BB-' rating

Fri Nov 30, 2012 6:03pm EST

Overview
     -- We expect Bahamas-incorporated holding company Intercorp to continue 
receiving sufficient flow of dividends to cover its debt service for the next 
two to three years 
     -- We are affirming our 'BB-' issuer credit rating on Intercorp
     -- The stable outlook reflects our expectation that the company's current 
capital and financial flexibility won't significantly change over the next two 
years

Rating Action
On Nov. 30, 2012, Standard & Poor's Ratings Services affirmed its 'BB-' issuer 
credit rating on Intercorp Peru Ltd. (Intercorp; previously known as
IFH Peru Ltd.). The outlook is stable. Today's rating affirmation is part of our
regular annual review.

Rationale
The rating affirmation is primarily based on our expectation that Intercorp 
will continue to receive sufficient dividends in the next two to three years 
to cover its debt service, comprising mainly of annual interest expense of 
about $22 million on its $250 million notes due 2019.

Our rating on Intercorp continues to reflect its portfolio concentration in 
Banco Internacional del Peru--Interbank (BBB/Stable/--), Intercorp's largest 
asset and main cash source, its lack of liquid investments, and its inherently 
volatile cash flow due to factors that affect its subsidiaries' net income and 
their exposure to economic cycles and consumer spending. Interbank's good 
credit quality and the company's majority stake in all of its subsidiaries, 
which gives it control over their cash and financial policies, partially 
offset these factors. We assess the company's business risk profile as "weak" 
and its financial risk profile as "significant."

The company's relatively aggressive growth and investment strategy underpins 
its financial risk profile. However, we consider these factors inherent to the 
nature of the company's business activities. In addition, the company has a 
significant exposure to foreign exchange rate risk given that its debt is 
dollar denominated while it mainly generates cash in Peruvian soles. However, 
Intercorp's relatively low debt, compared with the value of its portfolio, 
expected dividends from its subsidiaries, and "adequate" liquidity mitigate 
this exposure. 

The company recently completed its corporate restructuring. Intercorp formed 
InRetail Peru Corp. as a holding of the retail (i.e. supermarkets and 
pharmacies) and real estate operations. The main driver of the reorganization 
was to create a more efficient structure to expand Intercorp's retail 
business, particularly Inkafarma, supermarkets, and the development of new 
shopping malls. Intercorp controls 71.33% of InRetail. As part of the 
restructuring InRetail issued a $460 million 144 A/Reg S IPO, including a 
green shoe option, in October 2012. The IPO was allocated locally and 
internationally. The free float of InRetail is about 22%. Intercorp Peru Ltd. 
has shareholdings of 70.6% in InRetail. In our view, the IPO proceeds will 
allow InRetail to fund its growth and capital requirements independently from 
Intercorp at least in the next two to three years, which will allow Intercorp 
to use its resources to fund its other business segments' expansion plans. 
Nevertheless, we don't expect InRetail to provide dividends to Intercorp 
during the same period, as it is in an expansion stage. We believe this 
restructuring will ease Intercorp's leverage levels and increase cash flow 
generation.

The company has also begun to diversify its portfolio by acquiring equity 
shareholding (that is, 50% plus one share) of two universities--Universidad 
Tecnologica del Peru S.A.C. and Promotora de La Universidad de Chiclayo 
S.A.C.--from Grupo IDAT for about $75 million, which Intercorp Peru Ltd. and 
NG Capital Partners financed. We expect Intercorp to integrate these two 
universities with those schools it already owns to strengthen its operations 
in its education segment.

Although we don't view Intercorp and its subsidiaries as having a single 
default risk, when analyzing Intercorp's leverage structure, we monitor the 
company's stand-alone and group debt, because if any of its subsidiaries 
become stressed, we believe Intercorp may provide some form of financial 
assistance. We focus only on the group's corporate debt and Interbank's, given 
its higher credit quality, and specific regulation and capital requirements.

Under our base case scenario, Intercorp would cover its minimal overhead 
costs, interests, and dividends with cash inflows at about 2x in 2012 and 3x 
in 2013, and use its excess cash to investments in its subsidiaries. We don't 
expect the company's debt or financial flexibility to materially change and to 
finance future acquisition through long-term debt. In addition, we expect that 
capital infusions and investments in subsidiaries will drop or grow at a 
slower pace following InRetail's IPO. We expect dividends to Intercorp to be 
above $120 million throughout the projected period, about 80% of which should 
come from its financial arm, Intercorp Financial Services (IFS). This amount 
should be sufficient to cover annual operating costs of less than $10 million, 
interest payments of about $35 million in 2012 and $28 million in 2013, and 
dividends of $20 million for 2012 and 2013. Investments are hard to predict 
due to Intercorp's active merger and acquisition activity, but given the 
recent IPO of InRetail we believe that the company will carry out moderate 
investments in other business lines and expand internally. 

Intercorp is involved in several sectors of the Peruvian economy, including 
financial services, insurance, supermarkets, retail, and real estate. IFS is 
the holding company for Interbank and its insurance division, Interseguro, and 
is Intercorp's main holding by both book value and dividends. InRetail will 
become the second largest holding by book value. InRetail is comprised of 
supermarkets (Supermercados Peruanos (SP)), retail pharmacies (Inkafarma), and 
shopping malls operations, which have significant market shares in Peru with 
about 33%, 47%, and 18%, respectively. We expect InRetail to use the majority 
of the IPO proceeds to expand its pharmacy operations, supermarkets, and 
develop shopping malls over the next few years.

Intercorp's other subsidiaries include its Bahamas-based financial institution 
Inteligo Bank Ltd. (formerly known as BluBank Ltd.) and its financing company 
Financiera Uno, which includes both a credit card operation and Urbi, a real 
estate developer that owns InRetail's real estate assets. The Peruvian family 
Rodriguez Pastor controls Intercorp.

Liquidity
In our opinion, Intercorp's liquidity is adequate. As of Sept. 30, 2012, 
Intercorp had $19.4 million in cash. During fiscal 2012, it collected 
dividends for about $130 million and we expect them to drop to $120 million in 
2013. We consider that these will be sufficient to cover operating cost of 
less than $10 million per year; interest expenses of about $35 million and $28 
million in 2012 and 2013, respectively; and relatively fixed dividends of $20 
million per year. 

The size of Intercorp's 2010 and 2011 acquisitions and the recent InRetail's 
IPO leads us to believe that the group would focus its growth efforts in the 
next two years mostly organically. Given Intercorp's comfortable debt 
maturities of about $13 million in 2013 and $12 million in 2014, the company 
would have more than $50 million in 2013 and 2014 of internally generated cash 
to expand its businesses. Intercorp should have excess cash available to 
expand its retail operations because its land acquisitions should be financed 
at Interproperties' level.

Moreover, we factor the following assumptions into our assessment of the 
company's financial flexibility:
     -- We believe that Intercorp's cash sources will exceed its uses by 1.2x 
or more;
     -- It has relatively good standing in local and international credit 
markets, as seen in its recent bond issuances;
     -- It owns a financial institution (Interbank) that provide timely (but 
limited by regulation) financial assistance, if required;
     -- Comfortable headroom of covenants compliance, including minimum 
operating cash flow interest coverage of 2.0x and maximum total debt to net 
worth of 65%; and
     -- A six-month funded reserve account under its $250 million notes; and
     -- Maintenance of liquid assets equivalent to one year of interest 
expenses.

Outlook
The outlook is stable, reflecting our expectation that the company's current 
capital and financial flexibility won't significantly change over the next two 
years. It also incorporates our expectation that projected dividends in the 
same period would comfortably cover the company's operating and financial 
needs. Rating upside is limited in the medium term and would most likely 
depend on greater diversification of cash flows. We don't believe that this 
will occur before 2014. We may lower the rating if financial flexibility 
deteriorates or if leverage significantly increases either at Intercorp's 
level or at its subsidiaries. This may be a consequence of more aggressive 
financial policies, especially with regard to its investments and dividends, 
although we do not consider this scenario probable.


Related Criteria And Research
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
Sept. 18, 2012
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- 2008 Corporate Ratings Criteria, April 15, 2008
     -- Rating Methodology for Investment Holding and Operating Holding 
Companies, Feb. 5, 2003

Ratings List
Ratings Affirmed

Intercorp Peru Ltd.
 Corporate Credit Rating                BB-/Stable/--      
 Senior Secured                         BB-                


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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