Azerbaijan, Baku, May 16 / Trend /
The international rating agency Fitch Ratings says that Bank VTB's ('BBB'/Negative/'bb-') secondary public offering (SPO) of shares is unlikely to have any immediate impact on the bank's ratings, according to the agency's report released on Thursday.
"At the same time, successful completion of the SPO would bring closer a potential one-notch downgrade of VTB's Long-term Issuer Default Ratings (IDRs) to 'BBB-', while also helping to support the bank's Viability Rating (VR) at the current 'bb-' level," the report says.
In January 2013, Fitch revised the Outlook on VTB's 'BBB' Long-term IDRs to Negative from Stable, reflecting the planned privatisation of the bank and the agency's expectation of a moderate reduction in government support as the privatisation progresses. Fitch stated that the Long-term IDRs could be downgraded by one notch, to 'BBB-', if the government makes tangible and significant progress with the privatisation, confirming the probability of its stake falling below 50 percent.
VTB recently announed that it plans to raise RUB102.5bn of new equity through an SPO by the end of May 2013 and that the Russian government is unlikely to participate in the issue. The bank has also stated that it has already obtained firm commitments for the full amount of the issue from a group of investors including the sovereign wealth funds of Norway, Qatar and Azerbaijan.
As a result of the SPO, the government's stake in VTB would be diluted to 60.9% from the current 75.5%. This, in Fitch's view, represents a significant reduction in the government's stake and confirms the authorities' intention to gradually privatize the bank. At the same time, the agency believes that reduction of the government's stake to below 50% remains a medium-term prospect, and further progress with the privatisation is unlikely in the near future given the statement from VTB's CFO that the government will not be selling shares in VTB for at least a year after the SPO. Fitch's base case expectation is that the privatisation process will continue with a further transaction in H214-H115, potentially reducing the government's stake to 50%+1 share, although there is considerable uncertainty on the parameters and timing of any such transaction, given the difficulty of predicting government policy, the bank's capital needs and market conditions.
Fitch expects to downgrade the bank's Long-term IDRs by one notch, to 'BBB-', in the event that the government reduces its stake below 50% or when it becomes apparent that this could be achieved through a single transaction and in a relatively short timeframe, also provided that the intention to proceed with the privatization remains. In any case, Fitch expects that VTB's IDRs will continue to be underpinned by a high probability of support from the Russian authorities, in case of need, given the bank's systemic importance, still close ties with the Russian authorities and the likelihood of the government continuing to hold a significant minority stake even after giving up majority control.
The SPO would help to support VTB's VR at the current level of 'bb-' due to moderately reduced concerns about the bank's capitalisation. Management projects that the Basel Tier 1 and total capital adequacy ratios will improve to, respectively, 11.9% and 16.3% as a result of the share sale, from 10.3 percent and 14.7 percent at end-2012. Fitch also estimates that the new capital injection would be sufficient for the parent bank to comply with new Basel III-like capital regulation that may be introduced in Russia later this year.
"However, the SPO by itself would not be sufficient to warrant an upgrade of the VR because of the only moderate improvement in capitalisation and continued weaknesses in other aspects of the bank's stand-alone profile. Specifically, concerns about the high level of credit risk in the bank's loan book and other asset exposures, weak and volatile performance and still significant market risk appetite/tolerance continue to weigh on the VR. At the same time, the VR benefits from VTB's currently comfortable liquidity position and low refinancing risk," the agency said.