(The following statement was released by the rating agency)
LONDON/MOSCOW, December 23 (Fitch) Fitch Ratings has downgraded
Alliance Bank JSC's Long-term Issuer Default Ratings (IDRs) and
bond rating to 'C' from 'CCC'. A full list of rating actions is
at the end of
this rating action commentary.
KEY RATING DRIVERS
The downgrade of Alliance's IDRs to 'C' from 'CCC' and Viability
Rating (VR) to
'c' from 'cc' reflects Fitch's view that the default is now
probably imminent in
light of (i) recent statements by Alliance's new management that
it plans to
initiate discussions with stakeholders, including the bank's
recapitalize the bank; (ii) the bank's weak stand-alone
which may be worse than previously disclosed in light of
requirements identified by management; and (iii) the absence of
any plans of
either the Kazakh authorities or the bank's new private
recapitalize the bank without creditor participation.
In a recent presentation to creditors (subsequently published),
highlighted the bank's weak capitalization, additional
structurally weak profitability and tight liquidity.
estimated that the bank needs to create further KZT75bn-KZT95bn
impairment reserves (equal to 11%-14% of gross loans, or 13%-16%
of Basel I
risk-weighted assets at end-9M13).
At end-9M13, Alliance reported a low Basel II Tier I capital
ratio of 2.4%; the
regulatory capital ratios were a higher 9.1% (Tier I) and 13.4%
respectively, mainly due to lower impairment reserves in
Fitch Core Capital was negative, mainly due to the deduction of
assets (which are included in Basel capital).
Creation of the additional impairment reserves identified by
with smaller announced write-downs of other assets, would result
in the bank
reporting deeply negative equity in both regulatory and IFRS
accounts. A full
write-down of the bank's subordinated obligations and recovery
notes (in the
IFRS accounts) would, therefore, be insufficient to restore the
position, meaning that some further recapitalisation measures
will also be
Fitch does not exclude the possibility that the bank's majority
stake) National Welfare Fund Samruk Kazyna's (SK) or the
expected new private
shareholder Bulat Utemuatov (acquiring a 16% stake from SK; has
an 80% stake in another failed bank, Temirbank, from SK) will
contribution to Alliance's recapitalization. However, the tone
of the recent
statements in Fitch's view clearly indicated that the bank's
will also be expected to participate in the recapitalisation.
The downwards revision of Alliance's Support Rating Floor to
'No Floor' from
'CCC' reflects Fitch's view that regulatory forbearance for the
bank is unlikely
to be extended beyond the near term, and that any support from
authorities is unlikely to be sufficient to prevent default.
Management expect to present a more comprehensive assessment of
requirements in mid-January 2014 when, Fitch believes, forms of
restructuring affecting senior creditors (excluding depositors)
are likely to be
Implementation of a restructuring of the bank's senior
obligations, which, in
Fitch's view, involves a material reduction of terms relative to
contractual terms, would, in accordance with the agency's
Exchange' criteria, result in the IDRs being downgraded to 'RD'
Fitch does not expect to take any further rating action as a
result of the
bank's announced intention, as part of its liquidity
preservation measures, not
to make payments to holders of recovery notes, which are due
this week. In
Fitch's view, the recovery notes do not represent obligations,
default on which
would "best reflect the uncured failure of the entity", (as
provided for in the
agency's rating definitions), and so would not trigger a
downgrade of the bank's
IDRs to default level.
The rating actions are as follows:
Long-Term foreign currency IDR: downgraded to 'C' from 'CCC'
Short-Term foreign currency IDR: affirmed at 'C'
Long-Term local currency IDR: downgraded to 'C' from 'CCC'
Viability Rating: downgraded to 'c' from 'cc'
Support Rating: affirmed at 5
Support Rating Floor: revised to 'No Floor' from 'CCC'
Senior debt rating: downgraded to 'C' to 'CCC'; Recovery Rating
Subordinated debt rating: affirmed at 'C'; Recovery Rating 'RR5'
+7 495 956 7016
Fitch Ratings CIS Ltd
26 Valovaya Street
+7 495 956 7065
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Media Relations: Anna Bykova, Moscow, Tel: +7 495 956 9901,
email@example.com; Hannah Huntly, London, Tel: +44 20
Additional information is available on www.fitchratings.com.
Applicable criteria 'Global Financial Institutions Rating
Criteria' dated 15
August 2012, 'Evaluating Corporate Governance' dated 12 December
'Assessing and Rating Bank Subordinated and Hybrid Securities'
dated 5 December
2012 and 'Recovery Ratings For Financial Institutions' dated 15
August 2012 are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Evaluating Corporate Governance
Assessing and Rating Bank Subordinated and Hybrid Securities
Recovery Ratings for Financial Institutions
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