09.11.2012 14:11
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Renaissance Kaznachei (Russia) -- Moody's downgrades Renaissance Financial Holding Limited to B2; outlook negative

London, 09 November 2012 -- Moody's Investors Service has today downgraded the long-term foreign and local currency issuer ratings of Renaissance Financial Holding Limited to B2 from B1. The Not-Prime foreign and local currency short-term ratings remain unchanged. The outlook for the issuer ratings is negative.

The rating action is based on the audited IFRS accounts for 2011 and the unaudited IFRS accounts for H1 2012.

RATINGS RATIONALE

Moody's said the downgrade of Renaissance Financial Holding Limited's long-term issuer ratings to B2 reflects the company's (1) continued loss-making performance -- for the third consecutive year -- which negatively affects its financial fundamentals; and (2) challenges to adjust to the unfavourable economic environment in its main markets following the global financial crisis.

Franchise

Renaissance Financial Holding Limited has been unsuccessful in its efforts to develop a balanced profit-generating model during the past three years against the background of changing market realities and challenging operating environment. Moreover, the costly investment banking workforce and IT platform are no longer matched with its earning opportunities because demand for investment products in Russia has declined and competition has intensified (including from state banks). Moody's observes that some of the company's expenses were due to expansion plans outside the Commonwealth of Independent States, and the company had achieved some success in geographical diversification into emerging markets outside Russia. However, the rating agency notes that the new revenues are not sufficient to compensate for the significant drop in trading income on the Russian market after 2008 and the subsequent reduced investment banking transactions. As a result, the compensation-to-revenue ratio and non-compensation-to-revenue ratio were as high as 57% and 51%, respectively, in H1 2012; therefore, expenses exceeded operating revenues. According to the company, significant cost-cutting efforts have being undertaken in 2012, but these are expected to impact the company's profitability only in H2 2012 and 2013.

Profitability

Moody's said that in H1 2012, Renaissance Financial Holding Limited's revenues from the operating activities (excluding extraordinary items and income from trading with the Renaissance group -- which is de-facto support from the group) were extremely low (approximately $30 million in H1 2012, vs. approximately $220 million in 2011), such that Renaissance Financial Holding Limited would have reported a loss of at least $110 million or 13% of the 'beginning period equity' in H1 2012 (vs. the $14 million loss actually reported). However, due to extraordinary gains (e.g., revaluation, reserves recovery and trading gains with related parties), Renaissance Financial Holding Limited lost only 1.5% of its 'beginning period equity' in H1 2012.

Liquidity and Capital

As a result of the decline in Renaissance Financial Holding Limited's equity and some increase in illiquid positions, liquidity has become more vulnerable as equity is below the level of the company's illiquid assets. However, liquidity still remains adequate, and the company is capable of facing a medium-sized, prolonged and unexpected market dislocation given the short maturity of the majority of assets. According to the company, some illiquid positions have been sold in H2 2012 and there are plans to sell a significant share of illiquid assets by the end of Q1 2013. In addition, Moody's observes that capital is still sufficient to absorb substantial market losses.

Negative outlook

The negative outlook on the ratings of Renaissance Financial Holding Limited reflects Moody's view that the company will face continued risks as it seeks to rebuild its profit-generating business model, and that future losses will negatively impact financial indicators such as capital and liquidity.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Negative pressure could be exerted on Renaissance Financial Holding Limited's ratings as a result of continued operational loss-making performance, and/or any increase of illiquid risk assets in proportion to equity. Any significant reduction of capital as a result of further losses could also have negative rating implications.

Renaissance Financial Holding Limited's ratings are unlikely to be upgraded in the medium term. However, the rating outlook may be changed to stable in case of (1) significant improvements in profitability; and (2) sustained reduced involvement in financing of illiquid assets, including other group segments.

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Global Securities Industry Methodology published in December 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Renaissance Financial Holding Limited is the investment banking arm of the Renaissance Group, which also includes consumer finance, asset management and merchant banking. The company reported total consolidated assets of approximately $5 billion and total equity of approximately $901 million under (unaudited) IFRS at end-H1 2012.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Vladlen KuznetsovAsst Vice President - Analyst Financial Institutions Group Moody'sInterfax Rating Agency 7th floor, Four Winds Plaza21 1st Tverskaya-Yamskaya St.Moscow 125047 Russia Telephone: +7 495 228 6060 Facsimile: +7 495 228 6091 Yves J Lemay MD - Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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