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Global Credit Research - 19 Oct 2010
Moscow, October 19, 2010 -- Moody's Investors Service has today changed to stable from negative
the outlook on the long-term foreign and local currency issuer
ratings of Renaissance Capital Holdings Limited (RCHL, rated B2)
and Renaissance Financial Holdings Limited (RFHL, rated B1) --
together Renaissance, representing the investment banking arm of
a wider Renaissance group. All ratings are affirmed at the current
The change in the outlook reflects Moody's expectations that Renaissance's
financial fundamentals and franchise value will not significantly deteriorate
further. The company proved its ability to withstand the continuing
challenges of the operating environment, thanks partly to additional
capital and liquidity received in Q4 2008-2009 after it faced significant
liquidity and capital squeeze due to its previously aggressive risk appetite.
Despite a significant decline in profitability, Renaissance demonstrated
positive results for 2008 and 2009, and although it recorded a modest
loss in H1-2010, income from primary operations was adequate
to cover ongoing costs. Costs were almost halved as a result of
cuts in personnel expenses; however, the group retained its
key personnel and distribution platform whilst preserving the majority
of business and remaining competitive. A capital injection from
stakeholder ONEXIM of ca. USD500 million in September 2008 had
restored Renaissance's liquidity and capital position which,
prior to the global financial crisis, was compromised by significant
intersegment financing. Whilst Moody's acknowledges the risk
of intersegment financing, RFHL's intersegment transactions
are limited by a cap agreed with ONEXIM group.
Going forward, Moody's does not anticipate a significant decline
in Renaissance's financial fundamentals as it has been operating
under adverse macroeconomic conditions over the past two years and has
already made major adjustments to its risk strategy and has been diversifying
its business, including geographically with more income being generated
outside its primary activities -- trading operations. Leverage
had declined to 2.8x at end-H1 2010 and is significantly
attributable to operating liabilities (settlements), thus partially
mitigating liquidity pressure, while market risk exposure is manageable.
Nonetheless, Moody's predicts volatility in revenues --
in line with the trends on the Russian capital markets -- and could
be affected by potential losses on inventory stock (which is significantly
correlated with the performance of the Russian securities index) and reduction
in trading volumes. However, the rating agency expects Renaissance
to remain competitive and to start benefiting from growing geographical
RCHL is a parent company of RFHL, and both companies represent the
investment banking arm of a wider Renaissance group, which also
incorporates asset management, merchant banking and consumer finance.
RCHL controls 50% plus half of one share in RFHL, with the
remaining stake controlled by ONEXIM group, one of the largest conglomerates
RCHL's B2 rating is one notch below that of RFHL (B1), because:
(i) the majority of the business is united under the umbrella of RFHL,
thus subjected to the effect of structural subordination; and (ii)
RCHL's access to cashflows from operating activity is restricted
to dividend payments which are, in turn, proportional to the
share of control (50% plus half of one share). At the same
time, any potential default of RCHL is likely to impose significant
reputation damage on all Renaissance group entities, including those
segments united under RFHL, such that its business and liquidity
position are significantly impaired.
Moody's previous rating action on RCHL was on 10 November 2009,
when the long-term foreign and local currency issuer ratings were
downgraded to B2 from B1 with a negative outlook. At the same time,
Moody's Interfax Rating Agency downgraded the long-term national
scale credit ratings of RCHL to Baa1.ru from A2.ru.
Moody's previous rating action on RFHL was on 10 November 2009 when
the B1/Not-Prime long- and short-term foreign currency
and local currency issuer ratings were assigned with a negative outlook.
At the same time, Moody's Interfax Rating Agency, which
is majority-owned by Moody's, assigned an A2.ru
long-term National Scale Rating (NSR) to RFHL.
The principal methodology used in rating RCHL and RFHL was Moody's
"Global Securities Industry Methodology," which can
be found on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Rating Methodologies sub-directory on Moody's
RCHL reported total (audited) consolidated assets of USD3.3 billion
and total equity of USD1.1 billion under IFRS at year-end
2009. In 2009 the company reported a profit of USD35 million.
RFHL reported total (audited) consolidated assets of USD3.2 billion,
total equity of USD1.1 billion at year-end 2009 and net
profit of USD12 million which suffered a one-off loss arising from
the sale of a portion of its brokerage business to RCHL.
Asst Vice President - Analyst
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
VP - Senior Credit Officer
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's Eastern Europe LLC
Moody's changes outlook on RCHL and RFHL (Russia) to stable from negative
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