NEW YORK (S&P Global Ratings) March 17, 2022--S&P Global Ratings said today that it lowered its credit ratings on several Freedom group subsidiaries that we consider directly or indirectly exposed to Russian financial markets or economic conditions. They remain on CreditWatch with negative implications (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," published March 3, 2022).
We lowered our ratings on several subsidiaries of unrated Kazakhstan-based nonoperating holding company Freedom Holding Corp.:
- Russian broker Investment Co. Freedom Finance LLC to 'CCC-' from 'B'.
- Kazakh bank Freedom Finance JSC, Kazakh brokers Bank Freedom Finance Kazakhstan JSC and Freedom Finance Global PLC, and Cypriot broker Freedom Finance Europe Ltd. to 'B-' from 'B'.
All the ratings remain on CreditWatch with negative implications.
We lowered the ratings on Investment Co. Freedom Finance LLC to reflect our view that it will likely have been severely affected by the steep repricing and disruption in Russia's capital markets, such as through sizable margin calls on end-clients or a revaluation of its trading portfolio. We therefore think the broker would likely need an unexpected favorable change in operating conditions to continue meeting its obligations.
We also lowered the Freedom group credit profile to 'b-' from 'b', and so lowered our ratings on the group's Kazakh and Cypriot broker and bank subsidiaries. This reflects the weaker business prospects for the Freedom group, but acknowledges that these entities are likely to be far less affected than their Russian affiliate.
We consider that the Freedom group's business operations in Russia, as well as any broader business related to Russian capital markets and with Russian clients, have likely experienced a setback due to the recent market turmoil and capital controls. However, our analysis suggests that, so far, there would be limited direct impact on the Freedom group.
We estimate that Freedom has historically generated less than 10% of group revenue in Russia, and we understand it earns less than 1% of total commission revenue in Ukraine. We consider it unlikely that there would be material spillover from the Russian subsidiary for other group entities. We understand that the Kazakh and Cypriot entities, which support client investment activity in international securities markets, continue to operate freely. In addition, we consider the group's exposure to Russian securities, which have experienced sharp repricing, to be concentrated in the Russian subsidiary. Consequently, we think the other operating subsidiaries' direct exposure to capital losses and market illiquidity should be contained and manageable.
That said, a significant currency translation loss also remains a notable risk for the group, in our view. The group's reporting currency is the U.S. dollar, but key functional currencies are the Kazakhstani tenge and Russian ruble. Their sharp depreciation in recent weeks is likely to significantly impair group earnings, at least in the short term.
The CreditWatch placement of our ratings on IC Freedom Finance LLC imply an at least a one-in-two likelihood we could lower the ratings, contingent on short-term developments 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 the entity to honor its obligations in full and on time.
The CreditWatch placement of our ratings on Kazakh and Cypriot broker and bank entities imply an at least a one-in-two likelihood we could lower the ratings, contingent on short-term developments over the next few weeks. The most likely negative development would be that the business proves less resilient to developments in Russia and knock-on effects in other capital markets and economies than we expect. We would expect to remove the CreditWatch placement and affirm the ratings if we have greater confidence in our base-case expectation that these operations prove resilient.
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
- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018
- 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: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013
- 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
- Russia Ratings Lowered To 'CCC-' And Kept On CreditWatch Negative On Increasing Risk Of Default, March 3, 2022
Ratings List
| Downgraded | ||
|---|---|---|
| To | From | |
|
Freedom Finance JSC |
||
|
Bank Freedom Finance Kazakhstan JSC |
||
| Issuer Credit Rating | B-/Watch Neg/B | B/Watch Neg/B |
| Kazakhstan National Scale | kzBB-/Watch Neg/-- | kzBB+/Watch Neg/-- |
|
Investment Co. Freedom Finance LLC |
||
| Issuer Credit Rating | CCC-/Watch Neg/C | B/Watch Neg/B |
|
Freedom Finance Global PLC |
||
|
Freedom Finance Europe Ltd. |
||
| Issuer Credit Rating | B-/Watch Neg/B | 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
| Analytical Group Contact: | Financial Institutions EMEA; Financial_Institutions_EMEA_Mailbox@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.