Overview
- The turmoil in the Russian capital markets and the capital controls that have been imposed have weakened the business prospects of Cyprus-based Ronin Europe Ltd. and the broader group, Ronin Partners B.V., in our view.
- Given Ronin Europe's bias toward non-Russian markets and that its strong capitalization is subject to regulatory oversight and therefore likely to persist, we see the default risk for this entity as slim.
- We lowered our long-term issuer credit rating on Ronin Europe to 'B' from 'BB-' and affirmed the short-term rating at 'B'.
- The negative CreditWatch placement acknowledges the current volatility in global capital markets and the dynamic political situation. It indicates that we could lower the ratings if Ronin Europe's operating conditions deteriorate more than we expect.
Rating Action
On March 11, 2022, S&P Global Ratings lowered its long-term rating on brokerage service provider Ronin Europe to 'B' from 'BB-' and affirmed its short-term rating at 'B'. The long-term rating remains on CreditWatch with negative implications, where we placed it on Feb. 28, 2022.
Rationale
S&P Global Ratings has changed its approach to rating Ronin Europe, prompting the rating action. Previously, the ratings on Ronin Europe reflected our assessment of the creditworthiness of the wider group, Ronin Partners B.V., and Ronin Europe's core status within the group. It is the main operational entity for the group's international business and an important booking center. As a result, we equalized the ratings on Ronin Europe with group stand-alone credit profile (SACP) of its parent, Ronin Partners. We did not assign an SACP to Ronin Europe.
We have now delinked the ratings on Ronin Europe from those on the group. In our view, the group does not exert sufficient control over Ronin Europe to adversely affect its credit quality. The group is likely to be exposed to significant credit stress because of the turmoil in the Russian capital markets, but this has had a limited impact on Ronin Europe's credit profile. We do not expect Ronin Europe's affiliates to have a material negative influence on it in future. Most of Ronin Europe's clients are located outside Russia, and it does not depend on cross-border execution capabilities to provide brokerage services to them.
Ronin Europe is domiciled and regulated in Cyprus and we understand that the Cyprus securities regulator, CySec, has taken a proactive stance. It is likely to prevent Ronin Europe from moving its capital and liquidity to other entities of the group. Ronin Europe holds itself separate from the group; its financial performance and funding are independent from the group, and it has no significant operational dependence on other group entities. Our credit analysis on Ronin Europe is therefore based on its stand-alone characteristics.
The starting point for our long-term rating on Ronin Europe is the anchor of 'b+'. It is derived from the blended economic risk score of '7' for the countries where the group has exposures and an industry risk score of '8' for the Cyprus banking sector. The anchor for securities firms that are supervised by the Cypriot regulator, such as Ronin Europe, is only one notch below the anchor for Cyprus banks, rather than the standard two notches, because Cyprus has more prudent regulation than many other countries.
We expect Ronin Europe to remain a niche financial boutique firm that offers brokerage services to a limited number of long-term, loyal clients. We expect the firm's revenue to remain concentrated on its largest clients. The firm also has a proprietary investment portfolio of bonds of international governments and corporates in developed and emerging markets. Russian corporates and government bonds accounted for about 15% of its assets as of Feb. 22, 2022. Ronin Europe is ultimately owned by its management, via Ronin Partners. Group CEO Andrey Gaek is the main beneficiary and owns a 75% stake. Mr. Gaek's two business partners jointly own the remainder.
We expect Ronin Europe to maintain its capitalization at very strong levels in 2022, even if we assume a full write-off of its Russian securities. This is based on our assumption that it will not pay any dividends or move capital to other entities in the group and will not materially expand its balance sheet. We expect Ronin Europe's risk-adjusted capital ratio to remain above 50% in 2022. In our view, the capital is of high quality, with no Tier 2 capital. Its profitability in 2022 will likely be lower than in 2021 because its brokerage commissions could be lower and its Russian securities subject to heavy negative revaluation. We anticipate that Ronin Europe will maintain its investment philosophy, which is based on its risk-averse culture and diversified investment portfolio. We expect Ronin to continue to predominantly fund its assets with capital and to maintain an adequate funding and liquidity profile.
Our issuer credit rating on Ronin Europe includes a one notch negative adjustment. We apply this adjustment to the SACP, as part of our comparable ratings analysis, to signify that a 'b+' SACP is usually associated with larger institutions that have much better business diversity, a larger scale of operations, a more-advanced strategy, and better corporate governance. As a result, the SACP is 'b' and the rating is 'B'.
CreditWatch
The rating was placed on CreditWatch negative because of the risks to Ronin Europe's creditworthiness stemming from the volatility in global capital markets and the dynamic political situation.
We expect to resolve the CreditWatch placement once it becomes clearer whether the military conflict in Ukraine and the related sanctions and capital controls will have a more negative impact on Ronin Europe than we currently expect.
Ratings Score Snapshot
| Issuer credit rating | B/Watch Neg/B | |||
|---|---|---|---|---|
| SACP | b | |||
| Anchor | b+ | |||
| Business position | Constrained (-2) | |||
| Capital and earnings | Very strong (+2) | |||
| Risk position | Adequate (0) | |||
| Funding | Adequate (0) | |||
| Liquidity | Adequate (0) | |||
| Comparable ratings analysis | -1 | |||
| Support | 0 | |||
| ALAC support | 0 | |||
| GRE support | 0 | |||
| Group support | 0 | |||
| Sovereign support | 0 | |||
| Additional factors | 0 | |||
| SACP--Stand-alone credit profile. ALAC--Additional loss-absorbing capacity. GRE--Government-related entity. | ||||
Related Criteria
- Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And Assumptions, Dec. 9, 2021
- Criteria | Financial Institutions | General: Financial Institutions Rating Methodology, Dec. 9, 2021
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Ratings On Three Broker Groups Lowered And Placed On CreditWatch On Exposure To Russian Markets, March 10, 2022
- Russian Banks Downgraded To 'CCC-/C'; Ratings Put On CreditWatch Negative, March 7, 2022
- Russia Ratings Lowered To 'CCC-' And Kept On CreditWatch Negative On Increasing Risk Of Default, March 3, 2022
Ratings List
| Downgraded; Ratings Affirmed | ||
|---|---|---|
| To | From | |
|
Ronin Europe Ltd. |
||
| Issuer Credit Rating | B/Watch Neg/B | BB-/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
| Analytical Group Contact: | Financial Institutions EMEA; Financial_Institutions_EMEA_Mailbox@spglobal.com |
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