Moody’s announces that merger with Etalon Bank doesn’t affect Orient Express Bank rating
2009.03.29
Moody’s Investors Service today said the recent announcement by Orient Express Bank (OEB, rated B3/NP/E+ stable) that it would merge with a smaller sister entity Etalon Bank (not rated) is – at present – credit-rating neutral. Based on the information currently available, the rating agency said the proposed transaction is expected to have a minimal impact on OEB’s financial metrics and the combined bank risk profile of OEB and Etalon.
Based on end-January 2009 financial statements, the combined bank would have total net assets of around RUB 45.3 billion (US$1,258 million) and total capital of RUB 9 billion (US$288 million). The combined entity will focus on retail banking and will operate under the Orient Express brand.
Moody’s says that, given the limited information currently available, there is a degree of uncertainty regarding the asset quality of Etalon’s loan book. However, any negative implications are likely to be offset by its relatively small size (RUB5.0 billion [US$139 million]) and adequate level of combined shareholder’s equity, which stood at RUB9 billion (US$288 million) as at end January 2009, representing 15.4% of combined total assets. The combined capital would be sufficient to absorb significant losses possibly embedded in the loan book of Etalon.
In addition potential operating challenges in respect of integrating the two entities is considered consistent with OEB’s B3 rating.
Moody’s notes that majority stakes in OEB and Etalon are controlled by Mr. Igor Kim and his partners who are also major shareholders in URSA Bank. Consolidation of the banking assets of OEB and Etalon amid the current economic and financial crisis appears reasonable from the shareholders’ stand point as the combined entity is likely to benefit from lower overall operating costs and a larger assets and capital base.
Going forward, Moody’s will continue to closely monitor developments in order to assess OEB’s ratings as the bank advances its merging activity in the current challenging environment.
The previous rating action on OEB was on 23 September 2008 when Moody’s changed the outlook on the long-term global local and foreign currency deposit ratings of 12 Russian banks to stable from positive. This rating action reflected the recent developments in Russia’s banking sector that are likely to exert negative pressure on the funding profiles, financial fundamentals and capitalisation of the banks identified in the press release. Specifically, Moody’s changed to stable from positive the outlook on OEB’s long-term global local and foreign currency deposit ratings, long-term debt ratings and BFSR.
