Fitch Ratings has assigned Biz Finance Plc upcoming hryvnia-denominated eurobond issue an expected Long-Term rating of 'B-(emr)(EXP)' and recovery rating of 'RR4', reads a report on the rating agency's website.

"Senior unsecured loan participation notes will be issued by Biz Finance Plc, a UK-based special-purpose vehicle. Proceeds from the issuance will be lent by Biz Finance Plc to JSC State Export-Import Bank of Ukraine (Ukreximbank) for the latter's general banking activity. Ukreximbank's obligation under the loan will rank equally with the bank's other senior unsecured and unsubordinated obligations," according to the document.

"The notes are denominated in Ukrainian hryvnias, but both the coupon payments and principal repayment are settled in U.S. dollars at the prevailing hryvnia to U.S. dollar exchange rate. The linkage of payments under the terms of the notes to the prevailing exchange rate means that Fitch does not regard the conversion of currencies at the transaction's initiation and maturity as altering the underlying local-currency nature of the note. The 'emr' suffix denoting embedded market risk has been applied to the rating of the notes to reflect the fact that upon maturity the investors are paid in U.S. dollars rather than in hryvnia (the currency of the notes)," the agency experts said.

"The issue terms contain a clause allowing Ukreximbank to make settlements in hryvnia if the exchange rate cannot be determined (when it is not published by the National Bank of Ukraine or it cannot be received from reference currency dealers). Fitch would not treat such a situation as an event of default, as it is contractually permissible. However, the inability of Ukreximbank to pay in U.S. dollars in other circumstances would be considered a default," they stated.

"According to Fitch's Rating Definitions, ratings do not comment on the taxability of payments made in respect of any investment, loan or security and therefore the rating of these notes does not factor in the possible impact from withholding tax on bondholders' proceeds. In accordance with the terms of the issuance, bondholders may suffer a tax deduction if the U.S. dollar repayment amount is more than the original U.S. dollar-equivalent amount of the bond (i.e. if the hryvnia appreciates against the U.S. dollar during the lifetime of the bond)," the report says.

Ukreximbank has Long-term Foreign- and Local-Currency Issuer Default Ratings (IDR) of 'B-', with stable outlooks, a Short-Term Foreign-Currency IDR of 'B', a National Long-term Rating of 'AA(ukr)' with a stable outlook, a Viability Rating of 'b-', a Support Rating of '5' and a Support Rating Floor of 'B-', according to Fitch.

"Any change in Ukreximbank's Long-Term Local-Currency IDR would affect the bond's rating. Ukreximbank's IDRs are in turn sensitive to the sovereign's credit profile and could be downgraded in case of a sovereign downgrade. The bank's IDR could also be downgraded in case of restrictions being imposed on its ability to service obligations (not expected by Fitch). An upgrade of the sovereign could result in an upgrade of the bank's ratings if Fitch takes the view that the sovereign's ability to provide support to the bank has also materially improved," according to the report.