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Moody's upgrades Khanty-Mansiysk bank Otkritie PJSC's deposit ratings, and will withdraw the bank's ratings

August 26, 2016 | Cbonds

Moody's Investors Service has upgraded Khanty-Mansiysk bank Otkritie PJSC's (KhMBO) long-term foreign and local-currency deposit ratings to Ba3 from B2, in line with that of the parent - Bank Otkritie Financial Corporation PJSC (BOFC), following KhMBO's reorganisation and merger with BOFC. KhMBO's short-term deposit ratings were affirmed at Not-Prime. Moody's will then withdraw the following of KhMBO's ratings: long-term deposit ratings of Ba3, short-term deposit ratings of Not-Prime, as well as the CR Assessments of B1(cr)/Not-Prime (cr), baseline credit assessment (BCA) of b3 and adjusted BCA of b2, as the bank ceased to exist as a legal entity following the merger with BOFC on 22 August 2016.

Concurrently, Moody's affirmed subordinated debt rating of Caa1(hyb) assigned to the non-viability subordinated debt of KhMBO issued in the form of $200 million 10.0% perpetual loan participation notes that are subject to contractual loss absorption upon the breach of a predefined trigger and/or the start of the bank's financial rehabilitation. These notes are Basel-III-compliant debt instruments, which qualify as regulatory additional Tier 1 capital. The notes were issued by BKM Finance Limited (a special purpose vehicle) for the sole purpose of financing a subordinated loan to KhMBO. This subordinated debt has been assumed by the parent BOFC.

RATINGS RATIONALE

This action follows KhMBO's merger with its parent BOFC, with a transfer of all its assets and liabilities to the latter. BOFC will continue to operate under two main brands: Otkritie Bank (in all regions) and Bank of Khanty-Mansiysk (in Western Siberia). This reorganisation is in line with the business optimization process within BOFC group and its further strategic development as a universal commercial bank.

In line with Moody's Banks methodology, the affirmed Caa1(hyb) rating is positioned three notches below the b1 adjusted BCA of BOFC, which assumed the assets and liabilities of KhMBO. This approach is in line with Moody's notching guidance for subordinated debt with loss triggered at the point of non-viability, such as when the bank is subject to financial rehabilitation and/or upon the breach of capital triggers set at or close to the point of non-viability, both on a contractual basis.

Under the terms of the subordinated notes, their principal will be written down (partially or in full) in the event that the bank's core Tier 1 ratio falls below 5.5%, or if the Central Bank of Russia together, with the Deposit Insurance Agency, implements bankruptcy prevention procedures. In case of a write-down event, the accrued interest on the notes is cancelled (partially or in full, depending on the write-down of the principal).

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its web site, www.moodys.com.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Company: Khanty-Mansiysk bank Otkritie

Full company namePublic Joint-Stock Company «Khanty-Mansiysk bank Otkritie»
Country of riskRussia
Country of registrationRussia
IndustryBanks

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