Fitch Rates Gazprombank's Upcoming CHF Subordinated Notes 'BB-(EXP)'

Wed Jan 15, 2014 10:27am EST

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(The following statement was released by the rating agency) MOSCOW/LONDON, January 15 (Fitch) Fitch Ratings has assigned Gazprombank's upcoming CHF-denominated subordinated loan participation notes (LPN) issue with write-down features an expected long-term rating of 'BB-(EXP)'. The final rating of the issue is contingent upon the receipt of the final documents conforming to information already received. KEY RATING DRIVERS Fitch rates Gazprombank's "new-style" Tier 2 subordinated debt issues one notch lower than the bank's 'bb' Viability Rating (VR). This includes (i) zero notches for additional non-performance risk relative to the VR, as Fitch believes these instruments should only absorb losses once a bank reaches, or is very close to, the point of non-viability; (ii) one notch for loss severity (one notch, rather than two, as the issue will not be deeply subordinated). The upcoming "new-style" subordinated debt notes will be issued by an Ireland-based special purpose vehicle, GPB Eurobond Finance plc, which will on-lend the issue's proceeds to Gazprombank under a subordinated loan agreement. The notes will have a principal and coupon write-down feature (pro rata with other loss-absorbing instruments) triggered if (i) the bank's core Tier 1 capital adequacy ratio decreases below 2%; or (ii) bankruptcy prevention measures are introduced in respect to the bank. The latter is possible as soon as a bank breaches any of its mandatory capital ratios, or is in breach of certain other liquidity and capital requirements. The issue amount and the coupon rate are yet to be determined. The bank expects the tenor of the LPNs to match the Russian bank regulator's requirement for "new-style" Tier 2 capital instruments (minimum five years). Gazprombank will seek LPNs listing on SIX Swiss Exchange in the form of depository notes. For more details on Fitch's approach to rating subordinated debt issues of Russian banks see 'Fitch Affirms Russian State-Owned Banks' Old Sub Debt, Indicates Approach For Rating New Issues' dated 18 April 2013, and 'Implementation of New Capital Rules in Russia: Moderately Positive, Unlikely to Lead to Rating Changes', dated 19 April 2013, at www.fitchratings.com. RATING SENSITIVITIES The issue's ratings are linked to the bank's VR. Gazprombank's VR could benefit from a reduction in the bank's loan concentrations, acquisition finance exposures and non-core assets, combined with further improvements in capitalization and profitability. A significant deterioration of the operating environment in Russia, or weaker performance of the loan book as a whole or some of the higher-risk exposures could lead to downward pressure on the VR. Gazprombank's other ratings are unaffected: Long-term foreign currency IDR: 'BBB-'; Outlook Stable Long-term local currency IDR: 'BBB-'; Outlook Stable Short-term foreign currency IDR: 'F3' National long-term rating: 'AA+(rus)'; Outlook Stable Viability Rating: 'bb' Support Rating: '2' Support Rating Floor: 'BBB-' Senior unsecured debt long-term local-currency rating: 'BBB-' National long-term debt rating: 'AA+(rus)' GPB Eurobond Finance plc's other debt ratings are unaffected: Senior unsecured debt long-term foreign-currency rating: 'BBB-' Senior unsecured debt long-term local-currency rating: 'BBB-' 'Old-Style' subordinated debt rating: 'BB+' Contact: Primary Analyst Alexander Danilov Senior Director +7 495 956 2408 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Secondary Analyst Roman Kornev Associate Director +7 495 956 7016 Committee Chairperson James Longsdon Managing Director +44 20 3530 1076 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Assessing and Rating Bank Subordinated and Hybrid Securities, dated 5 December 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research: Assessing and Rating Bank Subordinated and Hybrid Securities 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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