Moodys Upgraded Ratings of Alliance Bank
OREANDA-NEWS. July 09, 2010. Moody's Investors Service has upgraded the long-term local and foreign currency deposit ratings of Alliance Bank to B3 from Caa3. The bank's E bank financial strength rating (BFSR), which now maps to a Baseline Credit Assessment (BCA) of Caa2, and Not Prime short-term ratings have been affirmed. Concurrently, the bank's senior unsecured and ubordinated notes issued in the course of the restructuring have been assigned long-term debt ratings of B3 and Caa1, respectively, reported the press-centre of Alliance Bank.
The bank's BFSR carries a stable outlook. The outlook on the bank's long-term debt and deposit ratings is developing.This rating action concludes the review of Alliance Bank's long-term deposit ratings initiated by Moody's on 6 April 2010.
"The upgrade of the bank's debt ratings was triggered by the completion of the debt restructuring that facilitated recapitalisation of the bank by approximately a USD3.7 billion, thus enabling it to (i) report shareholder's equity of KZT31 billion (in accordance with local accounting standards) as at end-March 2010, and (ii) meet the minimal capital adequacy requirements of Kazakhstan's Financial Market Supervision Authority (FMSA)," says Mr. Semyon Isakov, a Moody's Assistant Vice-President and lead analyst for the bank. "At the same time, Alliance Bank continues to operate with an IFRS capital deficit of KZT128 billion as at end-March 2010, while its income from the core banking operations currently does not fully cover operating expenses, thereby constraining the bank's BFSR at E," adds Mr. Isakov.
Moody's notes that Alliance Bank is currently controlled by the Kazakhstan government through the National Welfare Fund -- Samruk-Kazyna, and the latter has supported the bank (in terms of capital and liquidity) amid the global financial crisis. Therefore Moody's assessment incorporates a moderate probability that systemic support would be extended to the bank in order to honour its liabilities in a timely manner.Moody's assessment also reflects the government's plans to relinquish control of the bank in the medium-to-long term. Therefore the bank's long-term B3 ratings currently benefit from a two-notch uplift from the bank's BCA of Caa2. The Caa1 local currency long-term debt rating assigned to the bank's subordinated debt is one notch below the B3 senior unsecured ratings assigned to the bank, and reflects subordination of
claims.
According to Moody's, Alliance Bank's ratings may be upgraded if the bank restores its capital base and substantially improves operating efficiency. Conversely, if the bank fails to improve its operating efficiency and capital position within the next 12 months and reports recurring loss for a prolonged period of time, the ratings could be downgraded, as reflected in the developing outlook assigned to the bank's long-term ratings.Moody's has assigned the following debt ratings to Alliance Bank's notes issued in the course of the restructuring:
- B3 senior unsecured foreign currency debt rating: USD615,138,144 Discount Dollar Notes due 2017
- B3 senior unsecured foreign currency debt rating: USD219,343,079 Par Dollar Notes due 2020
- B3 senior unsecured local currency debt rating: KZT1,248,534,571 Par Tenge Notes due 2020
- B3 senior unsecured local currency debt rating: KZT966,814,140 Discount Tenge Notes due 2017
- Caa1 subordinated local currency debt rating: KZT21,307,394,519 Subordinated Tenge B Notes due 2030
Moody's previous rating action on Alliance Bank was on 6 April 2010, when the rating agency placed the bank's Caa3 long-term deposit ratings on review for possible upgrade and withdrew the debt ratings assigned to the debt instruments that were cancelled in the course of restructuring.
The principal methodologies used in rating Alliance Bank were "Bank Financial Strength Ratings: Global Methodology", February 2007, "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", November 2009 which can be found at www.moodys.com in the Rating Methodologies subdirectory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
Headquartered in Almaty, Kazakhstan, Alliance Bank reported total assets of KZT413 billion (USD4.5 billion) and total capital deficit of KZT128 billion (USD2.5 billion), in accordance with unaudited IFRS financials as at 31 March 2010.
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