Fitch Ratings has upgraded
At the same time, Fitch has affirmed the senior unsecured 6th debentures issued by Cielo at '
The upgrade reflects the recovery of Cielo's profitability and the expectation of growing and strong operating cash flow generation. Cielo continues to benefit from its strong position in the Brazilian card payment industry and its competitive advantage relies in part on the relationship and distribution network of two important banks in the Brazilian banking system,
Key Rating Drivers
Highly Competitive Environment: The market dynamics for the Brazilian payment industry will continue to change quickly and Fitch expects competition to remain strong in the near term. The sector should continue to evolve rapidly, with technological innovations and new payment options, structurally changing the traditional business model. Cielo has the important challenge of quickly adapting its business model, and improving diversification in other products like financial solutions and software services.
Strong Position in the Brazilian Market: Cielo lost its position as the largest Brazilian merchant acquirer, with a reduction of market share to around 23% as of
TPV Growth Expected for 2024: Fitch projects Cielo's TPV to reduce in 2023 and to present growth in line with the industry in 2024 going forward. The base case scenario incorporates a TPV reduction of 7% in 2023 and growth of 6% in 2024. Cielo processed
Stronger Operating Margins: Cielo improved its profitability, with greater penetration of small and medium merchants and of prepayment products, loss of less profitable clients, gradual improvement in product diversification, together with the greater stability of Cateno's (JV responsible for managing services related to
Cielo is expected to generate a strong EBITDA of
Low Risk of Credit Loss: Cielo has no direct credit exposure to cardholders, as the card-issuing bank guarantees cardholders' payments, while the company's exposure to merchants is limited. The company is, however, partially exposed to card-issuing bank defaults on a payment settlement for
Strong Capital Structure: Cielo's net adjusted leverage, measured by the net debt to adjusted EBITDA ratio, including financial income derived from the acquisition of receivables from merchants, should be close to 2.0x in 2023 and to remain below 2.5x in the next three years. As of
Derivation Summary
Cielo is the second largest company in
Compared with independent players, such as Stone and PagSeguro, both with 11%, the three leaders have some competitive advantages due to their controlling shareholders' structure, as their relationship with leading commercial banks gives them access to a broad customer base to acquire merchant accounts. As is characteristic of the industry in
Key Assumptions
Revenues of
Revenues of Cateno of around
Annual investments of approximately
Dividends of 35% of net income in 2023 and 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A sustained improvement in profitability and market-share gains.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
An increase in the volume of credit and debit transactions with banks rated 'BB-' and below without collateral being pledged by the card-issuing bank or not guaranteed by
Weakening credit profile of the main banks that operate with Cielo;
A significant loss due to fraud and chargebacks;
Tougher competition leading to a significant loss of market share and profitability;
Significant changes in regulatory risk;
A negative rating action on
Liquidity and Debt Structure
Strong Financial Flexibility: Cielo has a strong financial flexibility. As of
With the repayment of the bonds in November of 2022, the company has no debt in Foreign Currency. Total debt was composed of private debentures (24.6%), FIDC (53.5%), public debentures (21.7%) and others (0.2%).
Issuer Profile
Cielo is a multi-brand acquirer that captures, transmits, processes and settles transactions between large to small merchants with consumers under international brands such as
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
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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