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Fitch Affirms Renaissance Capital at 'B'; Rates Upcoming Eurobond

April 08, 2011 | Fitch Ratings

Fitch Ratings-London/Moscow-08 April 2011: Fitch Ratings has affirmed Renaissance Financial Holdings Limited's (RFHL) Long-term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. RFHL is the holding company of the Russia-headquartered investment banking group, known as Renaissance Capital (Rencap), and ultimately owns substantively all of the group's subsidiaries. The agency has simultaneously affirmed the ratings of RFHL's UK subsidiary, Renaissance UK Holdings Limited (RUKHL) and Renaissance Capital Holdings Limited (RCHL), which owns 50% plus half of one share in RFHL. A full rating breakdown is provided at the end of this comment.

The agency has also assigned RFHL's upcoming USD-denominated Eurobond an expected rating of Long-term 'B(exp)' and Recovery Rating of 'RR4(exp)'. The final rating is contingent upon the receipt of final documents conforming to information already received. The bond will be issued by Renaissance Securities Trading Limited. It will benefit from a guarantee provided by RFHL. RFHL's obligations under the guarantee rank equally with the claims of other senior unsecured creditors.

The affirmation of RFHL and Stable Outlook reflect the company's persistently weak operating profitability against the backdrop of the increasingly favourable operating environment. The ratings take into account the high exposure to market risk, the still sizeable related party business and principal investment portfolio as well as general concerns surrounding the business model and the funding profile, which is vulnerable to confidence erosion and liquidity constraints during times of stress.

Fitch notes that RCHL's Long-term 'B-' IDR is one notch lower than RFHL and RUKHL's ratings, reflecting the fact that RCHL controls only 50% plus half of one share of RFHL. The residual stake in RFHL has been held by ONEXIM Group (Onexim), controlled by prominent Russian businessman Mikhail Prokhorov, since June 2009. RCHL is a holding company that now also acts as a fundraising vehicle for the wider Renaissance group. In 2009-2010, it raised significant amounts of short-term debt to help meet repayments and finance business expansion in other parts of the group. RCHL does not always have access to cash flows from RenCap to service this debt. However, Fitch understands that a default of RCHL would pose serious reputational risk for Rencap and Renaissance group, which is an important consideration given the highly confidence-sensitive business model.

RFHL reported a small net loss (3% of equity) in 2010. Profits were hit by the rising operating expenses associated with intensive expansion efforts and a setback in the cash equity business. Despite three consecutive years of weak profits, Fitch still views the current pressures on performance as manageable. The agency believes that an improvement in revenues is likely in 2011 as the company should be able to take advantage of the increasingly favourable operating environment.

Fitch views positively the efforts Rencap has made to reduce its lending to related parties. Some loan repayments were made by the consumer lending and asset management divisions of the wider Renaissance group in 2010. In December 2010, RenCap reduced intercompany loans by USD133.4m (12% of equity) through the purchase of shares in two African banks - Ecobank Transnational Inc (rated 'B-'/Stable) and CBZ Holding Limited - from Renaissance Partners. RenCap intends to further reduce intercompany exposures. However, related party exposures have been increasing at RCHL in recent months as the entity is used as a fundraising vehicle for the group.

Funding and liquidity also remain key considerations as Rencap continues to significantly rely on capital markets for funding its market making/proprietary trading activities, while its long-term funding is largely tied up in illiquid assets. At end-2010, RFHL had about USD574m of cash, which was primarily supported by money-market borrowings.

Rencap was founded in 1995 and is now a leading Russia/CIS investment bank, also with operations in sub-Saharan Africa. In addition to the controlling stake which RCHL holds in Rencap, the broader Renaissance group also includes a Russian consumer finance bank, CB Renaissance Capital (upgraded today to 'B'/Stable; see separate comment on www.fitchratings.com), certain merchant banking assets under the umbrella of Renaissance Partners and Renaissance Investment Management.

The rating actions are as follows:

Renaissance Financial Holdings Limited:
Long-term IDR affirmed at 'B'; Outlook Stable
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '5' and withdrawn
Support Rating Floor: affirmed at 'No floor' and withdrawn

Renaissance Capital Holdings Limited:
Long-term IDR affirmed at 'B-'; Outlook Stable
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '5' and withdrawn
Support Rating Floor: affirmed at 'No floor' and withdrawn

Renaissance UK Holdings Limited
Long-term IDR affirmed at 'B'; Outlook Stable
Short-term IDR: affirmed at 'B'.

Fitch has withdrawn the Support Ratings and Support Rating Floors on RFHL and RCHL in line with the agency's usual practice of not maintaining these ratings on non-deposit taking institutions.


Company: Renaissance Capital

Full company nameRenaissance Capital
Country of riskRussia
Country of registrationRussia
IndustryFinancial institutions

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