Fitch Assigns Ratings to Omni S.A. Credito, Financiamento e Investimento

Fri Jun 7, 2013 3:52pm EDT

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(The following statement was released by the rating agency) RIO DE JANEIRO/NEW YORK, June 07 (Fitch) Fitch Ratings has assigned the following ratings to Omni S.A. Credito, Financiamento e Investimento (Omni): --Foreign and local currency Long-term Issuer Default Ratings (IDRs) 'B'; Outlook Stable; --Foreign and local currency Short-term IDRs 'B'; --Viability Rating 'b'; --Support Rating '5'; --Support Rating Floor of 'No Floor'. At the same time, Fitch has affirmed Omni's other ratings as follows: --National long-term rating at 'BBB-(bra)'; Outlook Stable; --National short-term rating at 'F3 (bra)'. KEY RATING DRIVERS - IDRS AND NATIONAL RATINGS The ratings of Omni are driven by its Viability Rating (VR). Omni's ratings reflect the institution's good systems and risk controls, as well as adequate profitability ratios. It also considers Omni's experience in its main business focus, financing autos (cars, trucks and utility vehicles, especially used, up to 25 years old, as well as new and used motorcycles) for the lower purchasing power classes ('C' and 'D'), a segment less exploited by the competition. The ratings also consider Omni's small size compared with its peers, high leverage, its business market, greater susceptibility to fluctuations in the economy, and its still limited access to long-term funding sources. This presupposes high revenue and business concentrations, typical of institutions with these characteristics. Omni continued to present operating results slightly above the average of banks and finance companies focused on consumers. Its delinquency ratios have also been high and greater than those reported in traditional banking activities, given the nature of consumer credit to the low-income classes. However, its high delinquency is well monitored and offset by the high interest rates charged and the diversification of its portfolio, which, according to Fitch, is not expected to experience excessive deterioration. Omni's funding will continue to rely on the securitization of assets for receivables-backed investment funds (FIDCs), as well as time deposits with special guarantees (DPGE I and II). Omni also has about BRL210 million (time deposits, notes and hybrid capital) funded by its shareholder. Omni is studying an overseas issuance of about USD50 million. Given the lower competition which allows Omni to be selective with its underwriting, the finance company plans to maintain the size of its loan portfolio at the current level. Due to loan portfolio retention, Fitch's calculation of core capital-to-total weighted risk assets remained around 9% in 2012, a percentage that is considered to be low. The agency weights loans sold to FIDCs at 75%. Hybrid capital and debt instruments, considered in regulatory capital as Tier 2, were not included in this calculation, although Fitch recognizes the benefits of this additional long-term source of funding. Omni has been increasing its private label credit card operations, mainly with small supermarket chains. Their participation in earnings, however, is still small, but will tend to grow over the long term. RATING SENSITIVITIES - IDRS AND NATIONAL RATINGS Omni's ratings could benefit from growth in the capital structure, greater funding diversification, and an improvement in its asset quality ratios. On the other hand, negative pressures on the rating may come from: a decrease in operating earnings and operational ROAA falling below 1.0%; Fitch core capital ratio below 8%; an increase in the level of encumbered assets; and/or a significant deterioration of its asset quality ratios. Founded in 1968 as Distribuidora de Titulos e Valores Mobiliarios (DTVM), a securities dealer, Omni was converted into a finance company in 1994. In first quarter 2013, Omni presented total assets of BRL1.4 billion (USD703 million), net worth of BRL152,6 million (USD75.8 million) and net income of BRL6,5 million (USD3.2 million). Contact: Primary Analyst Jean Lopes Associate Director Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20 - 401 B, Rio de Janeiro, RJ +55-21 4503-2614 Secondary Analyst Luiz Claudio Vieira Associate Director +55-21-4503-2617 Tertiary Analyst Robert Stoll Director +1-212-908-9155 Committee Chairperson Franklin Santarelli Managing Director +1-212-908-0364 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable Criteria and Related Research: --'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); --'National Ratings Criteria' (Jan. 19, 2011). Applicable Criteria and Related Research: National Ratings Criteria here Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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