Moody's may cut Bancolombia

Moody's Investors Service said it placed the D+ bank financial strength rating of Bancolombia, SA on review for possible downgrade and affirmed its foreign-currency deposit ratings at Ba3/not-prime.

Moody's action follows the announcement that Bancolombia has signed an agreement to acquire 52.9% of the outstanding shares of Salvadoran Conglomerado Financiero Internacional Banagricola, SA for about $900 million in an all-cash tender offer.

Moody's said Banagricola's sizable acquisition is likely to have a negative effect on Bancolombia's capital structure - and particularly on its tangible common equity, which is expected to be substantially reduced after accounting for goodwill.

The agency also said the absence of equity funding and management's plans to largely finance the acquisition through the issuance of tier-2 capital instruments imply a capital quality that is lower overall. The agency noted that Bancolombia's actual tier-1 capital ratio of 9.75% already is below the average 12.37% ratio of similarly rated Latin American banks.

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