Moody’s reviews for upgrade Caa3 of Alliance Bank

business and economy

Moody’s reviews for upgrade Caa3 of Alliance Bank

By SRI ⋅ April 7, 2010 ⋅

(Moody’s) - Moody’s Investors Service has on April 6 placed on review for possible upgrade the Caa3 long-term local and foreign currency deposit ratings of Alliance Bank.

The bank financial strength rating (BFSR) of E (stable outlook) and Not-Prime short-term local and foreign currency deposits ratings were affirmed. The bank’s C long-term foreign currency debt ratings, assigned to the notes that were cancelled in the course of the restructuring, as well as the C/Not Prime debt ratings of the bank’s $3 billion Medium Term Note (MTN) program, have been withdrawn.

The rating action follows the announcement that Alliance Bank completed the restructuring of US$4.5 billion debt on 30 March 2010, in a deal that included debt-to-equity conversion, as well as cancellation of existing debt and the issuance of longer-maturity bonds. The debt restructuring and the capital injection from the National Welfare Fund — Samruk-Kazyna allowed the bank to be recapitalized by approximately a US$3.7 billion , thus enabling it to meet the minimal capital adequacy requirements of Kazakhstan’s Financial Market Supervision Authority (FMSA), reporting a Tier 1 ratio of 6.7% and Tier 2 ratio of 12.4% as at end-March 2010. As a result of the restructuring, Alliance’s creditors now hold 33% of the bank’s capital while the National Welfare Fund — Samruk-Kazyna — has become its majority shareholder with a 67% stake.

“The review of the bank’s ratings is expected to be finalized shortly and will focus on the sustainability of Alliance Bank’s financial position in the long term, as well as the reassessment of the level of government support that is currently incorporated into the deposit ratings of the bank,” says Mr. Semyon Isakov, an Assistant Vice-President and Moody’s lead analyst for the bank. “In the absence of such external systemic support, a material uncertainty remains about the sustainability of the bank’s operations in the long-term. Consequently, the bank’s BFSR of E was left unchanged, with a stable outlook,” adds Mr. Isakov.

According to Moody’s, the review will focus on: (i) the ability of Alliance Bank to maintain the prudential capital requirements without external support; (ii) the adequacy of the current level of loan loss provisioning; (iii) the bank’s ability to generate recurring earnings in the longer term and (iv) the robustness of the bank’s liquidity profile.

Moody’s previous rating action on Alliance Bank was on 30 July 2009, when the rating agency downgraded the bank’s senior unsecured debt ratings to C, from Ca, and affirmed the Caa3 local and foreign currency deposit ratings with developing outlooks.