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Azerbaijani Kapital Bank’s Management Disagrees with Fitch’s Forecasts for Post-Privatisation Period

Business Materials 10 November 2007 13:57 (UTC +04:00)

Azerbaijan, Baku /corr. Trend I.Khalilova, A.Badalova / Azerbaijan half State-owned Kapital Bank does not agree with the forecasts of Fitch Ratings which says that the bank's rating will decrease after its full privatization.

"Fitch considers that today the risk of default in the bank is low due to the issue that State, as a key shareholder, may provide support to Kapital Bank at any times," said the Chairman of the bank's Executive Board, Rauf Rzayev.

According to him, making such forecasts, Fitch wishes to take less responsibility before the international investors who may become shareholders to Kapital Bank in the process of the second stage of the privatization. In addition, Rzayev considers that after privatization of the bank, it can not participate in State projects because the privatization should not lead to decrease in bank's market share.

Following the first stage of privatisation, the state's control was diluted to 50% and three local companies became new shareholders: Xalq Bank (20% stake), Ata Holding (20%) and Azersun (10%).

The Fitch's statement says that limited information is currently available about these companies' beneficiaries and their plans as to the bank's strategy. However, the bank's head considers that the future strategy of the bank is under formation and generally the future plans are prepared by the management of the bank and approved at the meeting of shareholders.

According to the recent decree by the President of Azerbaijan, the remaining 50% state-owned shares will be privatised as follows: 2.5% (distributed to the bank's employees); 5% (sold at an auction among individuals); and 42.5% (auctioned among legal entities). No timetable is indicated in the decree. According to Rzayev, the sale of bank's shares will be hold through open auctions and therefore, the strategic investors may participate.

The Fitch experts considers that acquisition of a large minority stake by a highly-rated foreign investor could provide support for the ratings, however, given the results of the first stage and the fact that the second stage does not offer an opportunity to acquire control, this seems unlikely.

Fitch will resolve the RWN once it receives information about the results of the second stage. Currently, Kapital's IDR reflects the moderate likelihood of support from the Azerbaijani authorities if needed.

The completion of the privatisation would likely result in a downgrade of the Long-term IDR (possibly by more than one notch), Support rating and Support Rating Floor, reflecting the authorities' probably lower propensity of support post-privatisation.

Fitch Ratings has placed Azerbaijan-based Kapital Bank's (Kapital) Long-term Issuer Default Rating (IDR) of 'BB-' (BB minus), Support rating of '3' and Support Rating Floor of 'BB-' (BB minus) on Rating Watch Negative (RWN). Fitch has also affirmed Kapital's Short-term IDR of 'B' and Individual rating of 'D/E'.

Kapital was established in 2000 and has the largest banking network in Azerbaijan with 90 branches and sub-branches, 99 other outlets and about 200 ATMs. At end-H107, Kapital was one of the top five Azerbaijani banks with assets of AZN151m, although its sector share was declining and comprised only 4%. After the first stage of privatisation, the share capital doubled to AZN24m.

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