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Standard & Poor’s Ratings Services has revised its outlook on Russia-based OJSC Commercial Bank Petrocommerce (PK) to stable from positive, reflecting the change in the bank’s ownership structure and the recent volatility in the Russian banking sector.
At the same time, Standard & Poor’s also affirmed its ‘B’ long-term and ‘C’ short-term counterparty credit ratings on the bank, as well as its ‘ruA’ national-scale rating, reflecting the bank’s close relationship with LUKoil OAO (LUKoil, BB/Stable/–)–Russia’s major oil company–which is expected to persist despite LUKoil’s upcoming sale of its former majority stake in PK’s share capital.
“The ratings also take into consideration PK’s improved credit profile thanks to its increasing diversification outside LUKoil companies, adequate capital and liquidity position,” says Standard & Poor’s credit analyst Irina Penkina. “These positive factors are offset by the bank’s relatively weak core earnings profile and still large, although decreasing, related-parties concentrations.”
Since its inception, PK has been controlled by LUKoil Group, for which it continues to serve as the main settlement bank. In June 2004, LUKoil announced its decision to sell 64.89% of its PK shares to IFD Kapital (not rated), a financial group combining insurance, asset management, and brokerage businesses, with close ties to LUKoil: Leonid Fedun, the chairman of the board of directors of IFD Kapital, is also vice-president and one of the owners of LUKoil. The transfer of ownership is not expected to change the nature and scope of PK’s transactions with LUKoil. Although IFD Kapital has less capacity than LUKoil to provide financial support to PK under distress scenarios, Standard & Poor’s assumes that the new owner will be able to satisfy PK’s capital needs for business development.
With consolidated assets of US$1.7bn and reported equity of US$261mn at December 31, 2003, PK ranks among the 15 largest Russian banks.
Standard& Poor’s expects that PK will be able to maintain its creditworthiness despite the volatile banking environment in Russia. Due to its advantageous connections with the LUKoil group, PK has the potential to expand its business and improve its financial profile. Standard & Poor’s also expects that IFD Kapital will provide capital support to PK in the future, in order to enable the bank to maintain its asset diversification and growth strategy.
“The evolution of PK’s ratings will depend on the development of the LUKoil group, improvements in the operating environment for Russian banks, and PK’s success in diversifying its independent client and revenue base,” adds Penkina.