OREANDA-NEWS. On April 14, 2009 Standard & Poor's Ratings Services said it lowered its long- and short-term counterparty credit ratings on Kazakhstan-based Alliance Bank JSC (Alliance) to SD' (selective default) from 'CC/C' after the bank failed to make a payment on one of its financial obligations. The ratings were removed from CreditWatch, where they were placed with negative implications on March 20, 2009, reported the press-centre of KASE.

We understand that the bank missed a payment on a loan that matured on March 19, 2009. According to our definition, a selective default is representative of an issuer defaulting selectively, that is, defaulting on one issue or a class of issues, but honoring others in a timely fashion. Our default definitions include payment defaults on both rated and unrated financial obligations.

"We lowered the credit ratings to 'SD', assuming that Alliance Bank continued to honor its other obligations, although there is a high risk that it will stop doing so in the near term," said Standard & Poor's credit analyst Annette Ess. "Under our criteria, we treat distressed exchange offers to restructure debt  obligations as equivalent to a default on the part of the issuer, even though--technically--the investors may accept the offer voluntarily and no legal default occurs."

The Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations has instructed Alliance to prepare a restructuring and recapitalization plan that can be agreed with its creditors. The bank has started negotiating with its creditors to obtain a three-month  grace period in which to prepare this plan. We understand that this would only relate to certain financial obligations, and the bank is currently maintaining its banking operations.

We understand that Samruk Kazyna National Welfare Fund's acquisition of a majority stake in Alliance Bank has not yet been finalized and is uncertain under the current circumstances.

"We would lower the ratings on Alliance to 'D' (default) in the event that the bank defaults on all or substantially all of its debt, initiates a wide-ranging distressed restructuring of its debt obligations, or declares bankruptcy or insolvency," said Ms. Ess.

We would consider revising the ratings if the bank were to restore and sustain its repayment capacity and were to service all its debt obligations on a timely basis and avoid distressed debt restructuring, either through government support or improvements in its stand-alone credit profile.