Standard & Poor’s Ratings Services said it raised its long-term counterparty credit rating on Russia-based Rosbank OJSC to ‘BB+’ from ‘BB-‘. The outlook is positive. At the same time, the ‘B’ short-term counterparty credit was affirmed, and the Russian national scale ratings raised to ‘ruAA+’ from ‘ruAA-‘.
The upgrade is based on the French group Société Générale’s (SocGen; AA/Stable/A-1+) decision to execute its call option for the acquisition of an additional 30% stake in Rosbank, giving SocGen majority ownership (50% plus one share). The transaction is expected to be closed mid-February 2008. The total acquisition price (for an expected 57.8% stake by the end of June 30, 2008) should amount to $2.77 billion, representing one of the largest acquisitions Socgen has made in recent years.
“We consider Rosbank as a strategically important subsidiary of SocGen,” said Standard & Poor’s credit analyst Eugene Tarzimanov. “Therefore, the long-term rating on the bank is now three notches higher than its stand-alone credit quality (compared with one notch previously), reflecting SocGen’s expected strong parental support in terms of management, governance, and funding and liquidity if needed.”
The ratings are constrained by Rosbank’s sizable concentration in funding, challenges in managing an extensive distribution network, and the high level of competition pressuring interest margins.
“The positive outlook reflects our expectation that Rosbank has the potential to improve its stand-alone credit profile by withstanding competitive pressure on profitability and maintaining good asset quality,” said Mr. Tarzimanov. In addition, SocGen’s operational and managerial support is expected to increase significantly, positively affecting Rosbank in areas such as risk management, corporate governance, and IT. At the same time, we expect Rosbank to continue its rapid expansion in line with strategic goals, bringing the challenges of controlling new risks. Ratings downside might follow a significant reduction in SocGen’s support, the bank’s inability to control the quality of its rapidly growing loan portfolio, or its failure to reap financial benefits from its network.
