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Rating Action:

Moody's downgrades Alliance Bank's debt rating to C

Global Credit Research - 18 Feb 2014

Deposit ratings are affirmed at Caa2

London, 18 February 2014 -- Moody's Investors Service has today downgraded Kazakhstan's Alliance Bank's long-term local and foreign-currency senior unsecured debt rating to C from Ca. Concurrently, Moody's affirmed the bank's E standalone bank financial strength rating (BFSR) and lowered the corresponding baseline credit assessment (BCA) to c from ca. The rating agency also affirmed the bank's Caa2 long-term local and foreign-currency deposit ratings, its Not Prime short-term foreign-currency deposit rating, and C local-currency subordinated debt rating.

The outlook on Alliance Bank's deposit ratings remains developing, whilst the BFSR, senior unsecured and subordinated debt ratings carry no outlook.

Moody's rating action is based on the pending debt restructuring proposed by management in January 2014.

RATINGS RATIONALE

DOWNGRADE OF SENIOR UNSECURED DEBT RATING

In January 2014, Alliance Bank's management announced that debt restructuring and recapitalisation will be required in order to restore an estimated KZT152.7 billion (approximately $0.8 billion) shortfall in the bank's capital. This shortfall has arisen as a result of (1) the bank's already very low capital; (2) a likely increase in loan loss reserves; and (3) a write-down of part of the bank's deferred tax assets.

The proposed restructuring terms include a haircut of about 70% on Alliance Bank's approximately KZT90 billion of senior unsecured bonds. Whilst these terms have to be discussed and approved by the bank's creditors and shareholders, Moody's considers that there is a limited likelihood that the losses of senior unsecured creditors would be substantially below the proposed haircut. Therefore, C rating reflects the level of likely losses for creditors more appropriately.

DEPOSIT RATINGS AND SYTEMIC SUPPORT ASSUMPTIONS

Moody's affirmation of Alliance Bank's Caa2 deposit ratings is driven by the moderate systemic support assumption implied in these ratings given the bank's government ownership and the support that has been provided to the bank by the government and state-controlled entities. As a result, Alliance Bank's Caa2 deposit ratings receive three-notches of uplift from its c BCA. The rating agency understands that the bank may be privatised and merged with Kazakhstan-based Temirbank after a successful debt restructuring. In the event of a successful debt restructuring, Moody's will review its systemic support assumptions in Alliance Bank's deposit ratings based on the bank's market shares and overall importance for the Kazakh banking system.

DEVELOPING OUTLOOK ON DEPOSIT RATINGS

The developing outlook on Alliance Bank's deposit ratings, which indicates that these rating could either be downgraded or upgraded over the next 12 to 18 months, reflect the high degree of uncertainty about the bank's franchise prospects and its ability to meet its obligations to depositors. This uncertainty derives from (1) the bank's weakening credit profile characterised by the lack of capital and liquidity cushion, as well as loss-making operations; and (2) the final outcome of the management's proposed debt restructuring, which could be either debt relief and recapitalisation or the bank's liquidation.

WHAT COULD MOVE THE RATINGS UP/DOWN

Alliance Bank's standalone and deposit ratings could be upgraded if the bank successfully completes the announced debt restructuring and restores it solvency and liquidity.

Alliance Bank's standalone and debt ratings are at the lowest rating level and can't be further downgraded. Downwards pressure might develop on the bank's deposit ratings if the announced restructuring terms are not approved, leading to heavier losses for the debt holders and depositors compared to the losses currently anticipated by Moody's.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Almaty, Kazakhstan, Alliance Bank reported total assets of $3.8 billion and shareholders' equity of $33 million, as of end-Q3 2013, according to the bank's unaudited IFRS financial statements.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

This rated entity or its agent(s) did not participate in the rating process. Moody's was not provided, for purposes of the rating, access to the books, records and other relevant internal documents of the rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Armen L. Dallakyan
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Alliance Bank's debt rating to C
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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