Fitch Ratings downgrades BTA and Temirbank

business and economy

Fitch Ratings downgrades BTA and Temirbank

By SRI ⋅ March 26, 2009 ⋅

(Fitch Ratings) - Fitch Ratings has today downgraded Kazakhstan-based BTA Bank’s and its subsidiary Temirbank’s Long-term foreign currency Issuer Default Ratings (IDRs) to ‘CC’ from ‘B+’.

The ratings remain on Rating Watch Negative (RWN). A full list of rating actions is provided at the end of this commentary.

The downgrades reflect Fitch’s view that a default by the banks on at least some of their financial obligations is now probable. This follows BTA’s announcement on 17 March 2009 which made reference to consideration of “potential modifications to the BTA Group’s debt structure” and stated that “in the event any financial indebtedness to the BTA Group is accelerated prior to its stated maturity, Samruk-Kazyna (the bank’s majority shareholder) may no longer be prepared to provide … support” to BTA Group.”

Fitch notes that, in accordance with its coercive debt exchange (CDE) criteria, a CDE is deemed to have occurred if the terms of an entity’s financial obligations are materially reduced relative to their original contractual terms, and such a reduction occurs as a result of an exchange which is coercive or de facto necessary, even if technically voluntary. Execution of a CDE will result in an entity being downgraded to ‘D’ (default) or ‘RD’ (restricted default).

In Fitch’s view, there is a heightened risk further to the recent announcement that a material proportion of BTA’s and Temir’s liabilities will be subject to a CDE. Fitch also notes the apparently high probability that BTA will not repay certain financial obligations in accordance with their accelerated schedules, or will force creditors to waive acceleration rights. The execution of a CDE in respect to a material proportion of BTA’s or Temir’s liabilities would cause Fitch to resolve the RWN by downgrading the respective bank to ‘RD’ or ‘D’.

As far as Fitch is aware, both BTA and Temir at present remain current on their non-accelerated financial obligations. However, it has not been possible for Fitch to ascertain to what extent creditors have already sought to accelerate any of the banks’ financial obligations, or to assess what proportion of the banks’ liabilities have acceleration clauses which might have been triggered by Samruk-Kazyna’s recent acquisition of a majority stake in BTA.

Rating actions are as follows:

BTA Bank
Long-term foreign currency IDR: downgraded to ‘CC’ from ‘B+’; remains on RWN
Long-term local currency IDR: downgraded to ‘CC’ from ‘B+’; remains on RWN
Short-term foreign currency IDR: downgraded to ‘C’ from ‘B’, remains on RWN
Short-term local currency IDR: downgraded to ‘C’ from ‘B’, remains on RWN
Individual Rating: affirmed at ‘F’
Support Rating: downgraded to ‘5′ from ‘4′; removed from RWN
Support Rating Floor: revised to ‘No Floor’ from ‘B+’, removed from RWN
Senior unsecured debt: downgraded to ‘CC’ from ‘B+’, remains on RWN, Recovery Rating remains at ‘RR4′
Tier 1 perpetual preferred securities: downgraded to ‘C’ from ‘CCC’, remains on RWN, Recovery Rating remains at ‘RR6′

Temirbank
Long-term foreign currency IDR: downgraded to ‘CC’ from ‘B+’; remains on RWN
Short-term foreign currency IDR: downgraded to ‘C’ from ‘B’, remains on RWN
Individual Rating: affirmed at ‘E’
Support Rating: downgraded to ‘5′ from ‘4′, removed from RWN
Support Rating Floor: revised to ‘No Floor’ from ‘B+’, removed from RWN
Senior unsecured debt: downgraded to ‘CC’ from ‘B+; remains on RWN;
Recovery Rating remains at ‘RR4′

Contacts:
Maxim Miller, James Watson, Moscow, tel.: +7 495 956 9901

Media Relations:
Alexsei Mironov, Moscow, tel.: +7 495 956 9901/9908, alexei.mironov@fitchratings.com
Marina Moshkina, Moscow, tel.: +7 495 956 6904/9901, marina.moshkina@fitchratings.com