OREANDA-NEWS. Fitch Ratings says in a new special report that the exposure of four Russian state-owned banks to troubled Russian coal and steel producer Mechel is unlikely to have any impact on the banks' Issuer Default Ratings (IDRs) or debt ratings, which are underpinned by potential support from the Russian authorities. However, the significant exposure of Gazprombank (GPB; BBB-/Negative/bb) is a source of downward pressure on its Viability Rating (VR).

Mechel has experienced problems with servicing and repaying its sizable debt burden, of which 61% is owed to four Russian state banks - GPB, OAO VTB Bank (VTB; not rated), Sberbank of Russia (Sberbank; BBB/Negative/bbb) and Vnesheconombank (VEB; BBB/Negative). The banks are discussing possible scenarios with other interested parties, including a restructuring that would allow them to recognise lower upfront losses than in the case of bankruptcy. Fitch estimates that at 1 June 2014 the gross exposures of VTB and GPB exceeded their total regulatory capital buffers, meaning these two banks' standalone credit profiles are most exposed. Sberbank can relatively easily absorb any losses on its exposure, so its VR is not at risk, while VEB, as a development institution, has not been assigned a VR.

Sberbank, GPB and VTB have actively lobbied for most of their Mechel exposure to be exchanged into bonds of VEB, which would become the company's major creditor. This scenario would be positive for Sberbank, GPB and VTB, but negative for VEB's financial profile. VEB's management has criticised the plan, and its executive and supervisory boards have not yet approved the deal.

Other resolution alternatives are also being considered, including an exchange of the banks' debt into new Mechel shares. However, if the creditors are ultimately unable to reach agreement with the company's shareholder on the resolution, they may have to pursue bankruptcy.