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Ratings On Three Broker Groups Lowered And Placed On CreditWatch On Exposure To Russian Markets

NEW YORK (S&P Global Ratings) March 10, 2022--S&P Global Ratings said today that it lowered its long- and short-term issuer credit ratings on three brokers or broker groups exposed to Russia and placed them on CreditWatch (see ratings list).

The downgrades follow the lowering of our foreign and local currency sovereign credit ratings on Russia to 'CCC-/C' from 'BB+/B' and 'BBB-/A-3', respectively; these ratings remain on CreditWatch negative. We also revised downward our transfer and convertibility assessment on Russia to 'CCC-' from 'BBB-' (see "Russia Ratings Lowered To 'CCC-' And Kept On CreditWatch Negative On Increasing Risk Of Default," March 3, 2022).

We lowered our ratings on the three brokers to reflect our view of the substantial risk of their default. Some of the brokers have holding companies, material operations, or both outside Russia, but we believe all of them have been heavily affected by the developments there. For example, these brokers are highly exposed to Russian securities, which lost most of their value since Russia started its military operation in Ukraine on Feb. 24, 2022. To mitigate high exchange rate and financial market volatility and to preserve remaining foreign currency buffers, Russian authorities have--among other steps--introduced capital-control measures that we understand could constrain companies from honoring their obligations in full and on time. Also, the brokers might be unable to meet mounting margin calls, and their counterparty credit lines could be cut off.

Investment Co. Veles Capital LLC.

The downgrade reflects Veles' position as a leading market maker for Russian corporate and government bonds and broker for Russian institutional clients and high-net-worth individuals. We believe it could be severely affected by the steep repricing and disruption in Russia's capital markets, such as through sizeable margin calls on end-clients or a revaluation of its trading portfolio.

FG BCS Ltd.

We lowered our ratings on Cyprus-based nonoperating holding company (NOHC) FG BCS Ltd. and operating subsidiaries BrokerCreditService (Cyprus) Ltd., BrokerCreditService Structured Products PLC, and BCS Prime Brokerage Ltd. The downgrades reflect the likely heavy revaluation of the group's trading portfolio of Russian equities and bonds, which accounted for about 40% of its consolidated group equity at year-end 2021: 50% of this portfolio accounts for bonds that the group can hold to maturity, and 12% of equity is hedged by structured products. In addition, we believe the prospects of the group's global markets investment banking business are bleak in 2022, and there are restrictions on moving capital and liquidity between its Russian and foreign subsidiaries within the group due to capital controls by the Central Bank of Russia (CBR).

Renaissance Financial Holdings Ltd. (RFHL)

We lowered the ratings on Russia-based NOHC RFHL to reflect the likely heavy revaluation of the group's sizable trading portfolio of Russian bonds and equities, which accounted for about 1.5x of its consolidated group capital as of year-end 2021. In addition, we believe the prospects for its business are weak in 2022, and there are restrictions on moving capital and liquidity between its Russian and foreign subsidiaries within the group due to the CBR's capital controls. Moreover, RFHL has outstanding loans to its shareholder Russia-based investment fund Onexim, which accounted for about 0.9x of its capital at end-2021.

We placed the ratings on Veles, the BCS entities, and RFHL on CreditWatch negative to indicate that we could lower them again over the next few weeks. We expect to resolve the CreditWatch placement once we have more clarity on the technical ability and/or willingness of these brokers to honor their obligations in full and on time.

Related Criteria

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Ratings List

* * * * * * * * * * * * * * * * FG BCS Ltd. * * * * * * * * * * * * * * *
Downgraded
To From

FG BCS Ltd.

Issuer Credit Rating CCC-/Watch Neg/C B+/Watch Neg/B

BCS Prime Brokerage Ltd.

BrokerCreditService Structured Products PLC

Issuer Credit Rating CCC-/Watch Neg/C BB-/Watch Neg/B

BrokerCreditService (Cyprus) Ltd.

Issuer Credit Rating
Foreign Currency CCC-/Watch Neg/C BB-/Watch Neg/B
Local Currency CCC-/Watch Neg/C BB-/Watch Neg/B
* * * * * * * * * * * Investment Co. Veles Capital LLC * * * * * * * * * *
Downgraded
To From

Investment Co. Veles Capital LLC

Issuer Credit Rating CCC-/Watch Neg/C BB-/Watch Neg/B
* * * * * * * * * * Renaissance Financial Holdings Ltd. * * * * * * * * *
Downgraded
To From

Renaissance Financial Holdings Ltd.

Issuer Credit Rating CCC-/Watch Neg/C B/Watch Neg/B

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; or Stockholm (46) 8-440-5914

Additional Contact:Financial Institutions EMEA;
Financial_Institutions_EMEA_Mailbox@spglobal.com

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