S&P affirms Kazpost (Kazakhstan) ratings, withdraws them upon company request

July 1. KASE

S&P affirms Kazpost (Kazakhstan) ratings, withdraws them upon company requestStandard & Poor’s Ratings Services said today that it had affirmed its ‘BB’ long-term issuer credit and ‘kzA+’ Kazakhstan national scale ratings on Kazpost (JSC), a Kazakh postal operator. We subsequently withdrew the ratings at the issuer’s request.

At the time of the withdrawal, the ratings on Kazpost reflected our expectation of a “high” probability of timely and sufficient extraordinary government support in an emergency, and Kazpost’s ‘b’ stand-alone credit profile.

Our view of a “high” likelihood of extraordinary government support was based on our assessment of Kazpost’s:

– “Important role” as a provider of mail delivery and a distributer of pension payments on behalf of the government. Kazpost provides more than 80% of national regular mail services and delivers about 45% of pensions and social assistance payments in the country. Kazpost had a near monopoly in rural areas where 43% of Kazakhstan’s population lives.

– “Very strong” link with the Kazakh government. Kazakhstan’s government wholly owns Kazpost through Samruk-Kazyna (foreign currency BBB/Stable/A-3; local currency BBB+/Stable/A-2; Kazakhstan national scale kzAAA’). Although partial privatization has been discussed in the framework of the “people’s IPO” considered by the government for a few government-related entities, we don’t think such a privatization would weaken the company’s link with the government.

At the time of withdrawal, the ‘b’ stand-alone credit profile reflected Kazpost’s weak liquidity profile, low profitability, and weak reporting systems and risk management. The stand-alone credit profile was further pressured by Kazpost’s plans to expand into riskier retail lending, and plans to attract about KTZ4.2 billion of debt to fund its investment program. The stand-alone credit profile was supported by Kazpost’s adequate capitalization and good market position in rural areas.

We viewed Kazpost’s liquidity position as weak. Although total current wholesale funding-outstanding amount of $6.2 million from Islamic Development Bank (AAA/Stable/A-1+) as of May 1, 2011-stood at less than 3% of total assets, on-demand and short-term retail customer deposits exceeded cash, cash equivalents, and unpledged liquid securities on the same date.

At the time of withdrawal, the outlook was stable, indicating that we didn’t expect any changes in the policy and regulatory framework that would challenge our expectations of a “high” probability of timely and sufficient support from the government in an event of financial distress.

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