OREANDA-NEWS. Fitch Ratings has placed JSC Pervobank's (PB) 'B' Long-term Issuer Default Ratings (IDRs) on Rating Watch Evolving (RWE). The rating action follows the announcement of an anticipated share swap and ultimate merger with the larger Promsvyazbank (PSB). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
The RWE on PB's IDRs, National Rating, Viability Rating and senior debt rating reflects the potential for the transaction to significantly alter the bank's credit profile. The impact will depend on PSB's credit profile, the degree of operational integration between the two banks following the share swap and the extent to which PB could, in Fitch's view, rely on support from PSB, in case of need. PSB is a considerably larger bank, with assets exceeding those of PB by 16 times at end-2014, and so would dominate a 'banking group' formed by the two entities.

The Rating Watch Positive (RWP) on PB's Support Rating reflects the potential for the rating to be upgraded if, after the share swap, Fitch concludes that there is at least a moderate probability of support from PSB for PB, in case of need.

According to PSB, PB will initially operate as a sister bank of PSB. This will result from a share swap, whereby (i) PSB's majority shareholders, the Ananiev brothers, will transfer a stake of up to 5.6% in PSB to the owners of PB (including Leonid Mikhelson, currently PB's main shareholder); and (ii) PB's owners will transfer a large majority stake (exceeding 90%) in PB to the Ananiev brothers. The parties envisage that PB will continue to operate as a separate legal entity with its own management, perhaps for up to three years, after which it is likely to be merged legally with PSB and cease to exist.

RATING SENSITIVITIES
Fitch expects to resolve the Rating Watches on PB's ratings after the share swap is completed and sufficient information on the impact on PB's credit profile is available. The parties expect the share swap to be completed within three months, upon receipt of regulatory approvals. Depending on the timing of the swap and the availability of information, the resolution of the Rating Watches could extend beyond the typical six-month horizon.

PB's ratings could be upgraded if, in Fitch's view, PSB's credit profile is stronger than that of PB, and PB is likely to become closely integrated with PSB or benefit from potential support from PSB. PB's ratings could be affirmed if PSB's credit profile is viewed as broadly aligned with that of PB or there is expected to be limited integration between the two banks following the share swap. There could be downward pressure on PB's ratings if its financial metrics deteriorate as a result of the general weakening of the Russian operating environment, or if it loses franchise and funding from core clients as a result of the change in ownership.

The rating actions are as follows:

Long-term foreign and local currency IDRs: 'B'; placed on RWE
Short-term foreign currency IDR: affirmed at 'B'
National Long-term rating: 'BBB(rus)'; placed on RWE
Viability Rating: 'b'; placed on RWE
Support Rating: '5'; placed on RWP
Support Rating Floor: affirmed at 'No Floor'
Senior unsecured debt: 'B/BBB(rus)'; Recovery Rating RR4; placed on RWE