Fitch Ratings-London/Moscow-15 May 2013: This corrects the version published earlier today which incorrectly stated the maturity date.
Fitch Ratings has assigned Renaissance Consumer Funding Limited's upcoming issue of limited recourse loan participation notes, an expected 'B(EXP)' rating and a Recovery Rating of 'RR4'. The final rating is contingent upon the receipt of final documents conforming to information already received.
The proceeds from the issue will be on-lent to Russia-based Commercial Bank Renaissance Credit (RenCredit), which has a Long-term Issuer Default Rating (IDR) of 'B'/Stable, Short-term IDR of 'B', Viability Rating (VR) of 'b', Support Rating of '5'. In case of bankruptcy, the claims of investors in the current issue will rank at least pari passu with the claims of other senior creditors. Financial covenants of the agreement include RenCredit's obligation to maintain its prudential total capital adequacy ratio at least at 12% level.
As at end-Q113, RenCredit was the 65th-largest bank in Russia by assets and is one of the five leaders in the consumer finance segment in Russia. Onexim Holdings controls 89.52% of RenCredit via Renaissance Capital Investments Limited which also controls investment bank Renaissance Capital ('B'/Negative).
KEY RATING DRIVERS
The issue's 'B' rating corresponds to the bank's Long-term IDR of 'B'. The Recovery Ratings of 'RR4' reflects an average recoveries expectation of 31%-50% for senior debt holders in case of default.
RenCredit's Long-term IDR reflects the bank's markedly weaker and more volatile performance relative to other banks in the sector, and the significant increase in loss rates in 2012, which has prompted a review of underwriting policies. Reported profitability remained strong (ROAE of 19% in 2012) reflecting solid reported cost control, but was supported by insurance-related commissions (equal to 62% of 2012 pre-impairment profit; booked up front), and moderate provisioning of non-performing loans (NPLs; 69% coverage at end-2012).
However, capital and liquidity remain sound, with the Fitch Core Capital ratio at 20% at end-2012 and liquid assets exceeding total wholesale funding (most of which falls due in 2013). RenCredit's credit profile has also benefited from its acquisition in 2012 by the Onexim Group, which reduced contingent risks relating to other assets of the broader Renaissance group, and was followed by a RUB3.3bn equity injection into the bank.
Any changes to RenCredit's IDRs would also impact the issue's rating. A strengthening of the bank's underwriting, moderation of loss rates and greater sustainability of performance could lead to an upgrade of the bank's IDRs and issue ratings. A downgrade is less likely in the medium term given that the low rating level already captures most risks.
RenCredit's ratings (all unaffected):
Long-term foreign and local currency IDRs: 'B'; Outlook Stable
National Long-term Rating: 'BBB(rus)', Outlook Stable
Short-term IDR: 'B'
Viability Rating: 'b'
Support Rating: '5'
Senior unsecured debt Long-term Rating: 'B'; Recovery Rating 'RR4',
Subordinated debt Long-term Rating: 'B-'; Recovery Rating 'RR5',
Senior unsecured debt National Long-term Rating: 'BBB(rus)'