OREANDA-NEWS. On March 25, 2009 Fitch Ratings has downgraded Kazakhstan-based Alliance Bank JSC's Long-term Issuer Default Rating (IDR) to 'CCC' from 'B'. The rating remains on Rating Watch Negative (RWN). A full list of rating actions is provided at the end of this commentary.

The downgrade reflects continuing uncertainty in respect to the extent of support which the Kazakh authorities will make available to Alliance and the high risk that the bank will restructure part of its financial obligations. In accordance with Fitch's 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).

Although the risk of a CDE on Alliance's liabilities is viewed by Fitch as high, the bank is now rated one notch higher than BTA Bank and its subsidiary Temirbank, which were yesterday downgraded to 'CC'. This reflects three factors. Firstly, Alliance has not yet been acquired by the Kazakh authorities, and so any change of control clauses in the bank's borrowings are less likely to have been triggered.

This means that the current scope of potential debt acceleration is probably considerably less, and the near-term need for a restructuring of the bank's liabilities may be somewhat less pressing, in Fitch's view. Secondly, the considerably smaller size of the bank relative to BTA means that the scale of state support required by Alliance would probably also be significantly less. Thirdly, Alliance has to date been less overt in its public statements regarding a potential restructuring of its debt.

Rating actions are as follows:
Long-term foreign currency IDR: downgraded to 'CCC' from 'B'; remains on RWN

Short-term foreign 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 'CCC' from 'B'; remains on RWN, Recovery Rating at 'RR4'

Senior unsecured debt issued in Russia: downgraded to 'B-(B minus)(rus)' from 'BBB-(BBB minus) (rus)' (BBB minus (rus)); remains on RWN.