Fitch Downgrades Ukraine's Privatbank & Oschadbank to 'C'

Fitch Ratings-London/Moscow-10 July 2015: Fitch Ratings has downgraded CJSC Privatbank and JSC State Savings Bank of Ukraine's (Oschadbank) Long-term foreign currency Issuer Default Ratings (IDRs) to 'C' - from 'CCC' and 'CC', respectively. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
The downgrade of the Long-term foreign currency IDRs reflects Fitch's view that defaults by the two banks on certain senior debt obligations (eurobonds) are now almost inevitable. This follows the recent launch of consent solicitations by both banks to extend the maturities of these bonds. At the same time, Fitch recognises that the banks continue to service their other obligations, including customer deposits.

Both banks have initiated the restructuring process at least in part as a result of regulatory intervention. The National Bank of Ukraine (NBU) obliged Privat to restructure external debt obligations in other to ensure compliance with mandatory prudential ratios and preserve liquidity. The Cabinet of Ministers of Ukraine required Oschadbank, alongside other state-owned entities, to extend the maturity of its external debt as part of a broader exercise to support Ukraine's public sector finances and external liquidity following the introduction of the IMF's Extended Fund Facility for Ukraine in March 2015.

The two banks' proposed restructurings involve an extension of maturities, and in Fitch's view are being conducted to avoid further regulatory intervention. As such, Fitch treats them as defaults in accordance with its distressed debt exchange criteria. However, the proposals do not involve any write-down of principal, and coupons payable on the notes will increase.

In line with the downgrades of the banks' Long-term foreign currency IDRs, Fitch has downgraded to 'C'/'RR4' the senior debt issues subject to restructuring:

- Privat's USD200m Eurobond due in September 2015 
- Oschadbank's USD700m Eurobond due in March 2016
- Oschadbank's USD500m Eurobond due in March 2018

Privat's USD175m Eurobond due in February 2018, which is not covered by the current restructuring proposals, has been affirmed at 'CC'/'RR5', reflecting Fitch's view of still high non-performance risk and weak recovery prospects on the bond. Fitch does not rate the two banks' subordinated debt issues.

The banks' Long-term local currency IDRs have been affirmed at 'CCC' to reflect the fact that their local currency-denominated liabilities are not included in the restructuring process. The affirmation of the banks' National ratings reflects Fitch's view that their creditworthiness in local currency relative to other Ukrainian issuers has not changed significantly.

The affirmation of the banks' '5' Support Ratings and 'No Floor' Support Rating Floors reflects Fitch's view that foreign currency support from the authorities and/or shareholders will not be forthcoming.

The downgrade of Privat's VR to 'c' from 'ccc' reflects the bank's weak standalone profile, given the breach of minimum regulatory capital requirements and NBU's view that a debt restructuring is necessary to help ensure compliance with mandatory prudential ratios. Oschadbank's 'ccc' VR is unaffected, as to date the bank has remained compliant with minimum regulatory capital requirements. At end-1H15 Oschadbank's regulatory capital adequacy ratio was 15.95%.

RATING SENSITIVITIES
Fitch expects to downgrade both banks' Long-term foreign-currency IDRs further to 'RD' (Restricted Default) at the point of execution of the exchange offers on outstanding senior bonds, should they go ahead. The bond ratings of the obligations subject to restructuring are now at the lowest possible levels for instrument ratings, and so would not be subject to further downgrades in case of a restructuring. 

Fitch expects to review both banks' VRs, IDRs and debt ratings once the debt exchanges are completed and sufficient information is available on the banks' credit profiles. However, the ratings will likely remain low, given high country risks and Ukraine's 'CCC' Country Ceiling.

The rating actions are as follows: 

CJSC Privatbank
Long-term foreign-currency IDR downgraded to 'C' from 'CCC'
Long-term local currency IDR: affirmed at 'CCC'
Senior unsecured USD200m Eurobond of UK SPV Credit Finance plc due on 23 September 2015: downgraded to 'C' from 'CC', Recovery Rating'RR4'
Senior unsecured USD175m Eurobond of UK SPV Credit Finance plc due on 28 February 2018: affirmed at 'CC', Recovery Rating'RR5'
Short-term IDR: affirmed at 'C'
Support Rating: affirmed at'5'
Support Rating Floor: affirmed at 'NF'
Viability Rating: downgraded to 'c' from 'ccc'
National Long-term rating: affirmed at 'A-(ukr)', Outlook Stable

Oschadbank
Long-term foreign currency IDR: downgraded to 'C' from 'CC' 
Long-term local currency IDR: affirmed at 'CCC'
Senior unsecured debt of SSB No.1 PLC: downgraded to 'C' from 'CC, Recovery Rating 'RR4' 
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5' 
Support Rating Floor: affirmed at 'No Floor'
Viability Rating: 'ccc', unaffected
National Long-term rating: affirmed at 'AA-(ukr)'; Outlook Stable

Contact: 
Primary Analyst (Privat)
Lindsey Liddell 
Director
+44 20 3530 1008
Fitch Ratings Limited 
30 North Colonnade
London E14 5GN

Primary Analyst (Oschadbank)
Olga Ignatieva 
Senior Director
+7 495 956 6906
Fitch Ratings Moscow
Valovaya str., 26
Moscow

Secondary Analyst (Privat)
Sandra Hamilton 
Director
+44 20 3530 1266

Secondary Analyst (Oschadbank)
Sergey Popov 
Associate Director
+7 495 956 9981

Committee Chairperson
James Watson
Managing Director
+7 495 956 6657

Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 
Distressed Debt Exchange (pub. 12 Jun 2015)
Global Bank Rating Criteria (pub. 20 Mar 2015)

Additional Disclosures 
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy

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