OREANDA-NEWS. The National Rating Agency has affirmed its 'A+' Russian national scale and its 'iBB' global scale credit ratings on Otkritie Finance (Cyprus) Limited.

The company's credit ratings fall into the “Holding and Financial Companies” category of the NRA's rating list.

The ratings are supported by the company's good capital adequacy ratios, improving financial performance bolstered by strong profitability metrics and moderate operating risks. Other rating strengths include the company's long operating track record, solid market position, strong and stable partners, and potential support from OJSC Otkritie Financial Corporation (Otkritie FC), its ultimate holding company.

The company's financial position may be affected by the worsening macroeconomic and market conditions, high concentration of risks in the company's proprietary portfolio, and the growing competitive pressure in the financial market.

Otkritie Finance (Cyprus) Limited was founded in September 2005 as a wholly owned subsidiary of the Otkritie Capital Ltd. investment bank which, in turn, is a part of Otkritie FC. Otkritie Capital Ltd. focuses on prime brokerage and analytical research and offers Russian and international investors an advanced technological access to trading platforms. Otkritie Capital's business structure includes a number of companies, namely: Otkritie Trading, Otkritie Securities Limited (UK), Otkritie Finance (Cyprus) Limited, and Otkritie Inc. (USA).

Otkritie FC is organized into the following businesses: commercial and investment banking, brokerage, asset management, and insurance.

In 2013, the company continued to develop, building up its assets and improving its operating performance. At Dec. 31, 2013 its total assets were around USD84 million, equity was over USD41.7 million, and the equity adequacy ratio reached 49,7%, by far exceeding the Russia-based peers' average. The company's assets, albeit concentrated by type of investment, are characterized, as before, by good investment and credit quality, moderate debtor risks and strong liquidity. The company generates considerable revenues from proprietary trading, derivative instruments and FX transactions, as well as from its investments in high-yield instruments. The net profit for 2013 increased to USD4.7 million (around RUB150 million) with return on invested capital up to 13%.

The financial result on proprietary trading transactions, including derivative and FX operations, continues to influence the company's general financial performance, which has been rather volatile in the past few years. Despite the company's isolation from risks associated with Cyprus's financial infrastructure and economic problems, we note Otkritie Finance (Cyprus)'s considerable dependence on Russia's macroeconomic situation and the performance of Russian stock markets. The company's main risks are related to its investments in financial instruments traded in Russia or issued by Russia-based companies. The economic growth deterioration, accelerating outflow of foreign capital, and FX market instability in Russia may indirectly affect the business activity of Otkritie Finance (Cyprus)'s customers, the dynamics of the company's customer accounts and its revenues and profit in the next reporting periods.

Both Otkritie Finance (Cyprus) and the Otkritie Capital investment bank have strengthening their market positions last year. In 2012, Otkritie Finance (Cyprus) was granted the Cypriot regulator's license for brokerage operations in the retail sector and is now developing this business line. In 2013, the company upgraded its infrastructure and opened a direct-memory access to trading platforms to its customers. We observe a significant growth of the company's brokerage clientele. The parent investment bank maintains its status of Russia's leading bank by securities trading volumes, and has strong positions as a primary and secondary bond market dealer-broker and a provider of DMA services, services to institutional clients and M&A consultancy.