Fitch Puts ICB’s ‘BBB’/‘F3’ on Rating Watch Positive
October 5, 2006
Fitch Ratings has today placed Industry and Construction Bank’s (“ICB”) Issuer Default rating (“IDR”) of 'BBB' and Short-term rating of 'F3' on Rating Watch Positive (“RWP”). Its other ratings are affirmed at Individual 'D' and Support ‘2’.
The RWP follows the shareholder approval at ICB’s recent extraordinary general meeting (“EGM”) of its merger with Vneshtorgbank (“VTB”, ‘BBB+’/’F2’/’C/D’/’2’). Under the merger agreement, VTB would become the legal owner of all ICB’s assets and obligations. The merger is subject to the respective shareholder decision of VTB.
Fitch will resolve the RWP on the completion of the merger. Once complete, ICB’s IDR and Short-term rating would be equalised with those of VTB, based on Fitch’s view of the increased propensity of VTB to ensure obligations of ICB are met, and then withdrawn.
However, Fitch notes that certain legal and other requirements need to be fulfilled in order for the merger to proceed, which could delay the merger process (currently expected by VTB to take place by end-2006). Given that VTB has not yet formally made its decision on the merger with ICB, it would need to hold an EGM, the date of which has not been set yet, to consider this and related issues.
VTB will also need to issue new shares to meet its obligations under a share swap agreement. However, Fitch notes that VTB, which is 99.9%-owned by the Russian government, is currently listed as a ‘strategically important’ entity, and consequently, by law, the state’s holding in the bank cannot be reduced. Since the issuance by VTB of additional shares would result in a decrease (of up to 2.5%) in the government’s stake, a Presidential decree is required to allow this stake to be reduced. Although such a decree was recently submitted to President Vladmir Putin and there are no obvious obstacles to its ratification at the present time, it is uncertain how long this process will take or whether any new issues may arise that could delay its approval.
ICB is the leading universal bank in the North-West of Russia, with an extensive branch network, and one of the top 10 banks in the country with total assets of USD6.2 billion, net loans of USD3.4bn and shareholders equity of USD0.5bn at end-H106 (according to consolidated IFRS accounts).
Company — VTB Bank North-West
Full nameVTB Bank North-West