S&P revise outlooks on two Cyprus-based subsidiaries of Russian financial groups to neg
MOSCOW. March 25 (Interfax) - Standard & Poor's Ratings Services has revised its outlook on Cyprus-based subsidiaries S.L. Capital Services Ltd. (SLCS) and Ronin Europe Ltd. to negative from stable, the agency said in a press release.
At the same time, S&P affirmed the 'B/B' long- and short-term counterparty credit ratings on both entities.
The ratings and outlook on SLCS's Russian parent Aljba Alliance are unchanged.
The outlook revision reflects S&P's view that the importance of Cyprus-based subsidiaries SLCS and Ronin Europe to their Russian parents Aljba Alliance (B/Stable/B) and Ronin Partners Group (Ronin; not rated)--and the expected parental support--could decrease given increasing problems in Cyprus' financial system. This, together with the uncertainty about the conditions of Cyprus' assistance program, might undermine investor confidence in its financial system, in S&P's view. Also at risk is Cyprus' role, importance, and reputation as an offshore financial center, the press release said.
Ronin Europe and SLCS are located in Cyprus essentially for tax reasons. However, they do business virtually exclusively with Russian and other overseas clients. S&P understands that Ronin Europe and SLCS hold their proprietary assets and assets of customers at non-Cyprus-based global banking and financial institutions. S&P does not rule out that some of SLCS' and Ronin Europe's clients could contemplate channeling their transactions through other, more stable, jurisdictions than Cyprus in the future. This might ultimately decrease the strategic importance of Cyprus' subsidiaries to their parents. S&P also cannot discount the possibility that Aljba Alliance and Ronin Partners Group could scale back or close down their operations in Cyprus depending on the outcome of the bailout program that Cyprus is currently negotiating with the Troika (the IMF, EU, and European Central Bank), the press release said.
The outlook revision does not immediately affect the ratings on Aljba Alliance and S&P's view of the group credit profile (GCP) of Ronin Partners Group.
The ratings on Ronin Europe reflect its "core" status for Russia-based Ronin Partners Group, whose GCP we assess at 'b'. As a result, S&P equalizes the ratings on Ronin Europe with the parent's GCP.
Ronin owns 100% of Ronin Europe, the group's booking center for client-driven brokerage and the settlement center for the group's underwriting operations and proprietary securities investments.
S&P calculates that Ronin Europe has exposure to Cyprus of well below 10% of its total assets.
The ratings on SLCS reflect its "core" status for Aljba Alliance. As a result, S&P equalizes the ratings on SLCS with those on the parent.
Russia-based Aljba Alliance owns 100% of Cypriot subsidiary SLCS, which is the group's booking center for proprietary securities investments and client-driven brokerage and underwriting operations. SLCS' business, operations, and strategy are highly integrated with those of the group.
S&P calculate that SLCS has domestic exposure of well below 10% of its total assets.
The negative outlooks on both entities reflect S&P's view that it could lower the ratings if reputational risks for Cyprus as a financial center materially worsen and if it believe that risk of closing or scaling-down offshore operations has increased. If problems in Cyprus persist, parent companies such as Aljba Alliance and Ronin may decide to close operations in Cyprus and move them to other jurisdictions. This would lead S&P to reconsider SLCS' and Ronin Europe's status for their groups, the press release said.
S&P could consider revising the outlooks to stable if the situation in Cyprus' financial services sector stabilizes, and if the parent companies continued to support their Cypriot subsidiaries while the subsidiaries' operations remained integral to their groups.
