S&P affirms ratings of Agricultural credit corporation (Kazakhstan); outlook Stable

June 14. KASE

S&P affirms ratings of Agricultural credit corporation (Kazakhstan); outlook StableStandard & Poor’s Ratings Services said today that it had affirmed its ‘BB+’ long-term and ‘B’ short-term issuer credit ratings on Kazakh Agrarian Credit Corp. (KACC), a Kazakh government tool for providing cheap lending to the agricultural sector. The outlook is stable. We also affirmed our ‘kzAA-‘ Kazakhstan national scale rating on KACC.

The long-term rating on KACC reflects its stand-alone credit profile (SACP), which we assess at ‘b+’, its strategic importance for the parent, KazAgro National Management Holding (BBB+/Stable/A-2), and our opinion of a “high” likelihood that KACC would receive timely and sufficient extraordinary support from the Kazakhstan government, its ultimate owner via KazAgro Holding. The ‘b+’ SACP reflects KACC’s “moderate” business position, “very strong” capital and earnings, “moderate” risk position, “below-average” funding, and “moderate” liquidity, as our criteria define these terms.

In accordance with our criteria for government-related entities, our opinion of a “high” likelihood of extraordinary government support for KACC is based on our view of the company’s “important” role for the government and “very strong” link with the Kazakh government.

As a result of this expected support, our ‘BB+’ long-term rating on KACC is three notches higher than its ‘b+’ SACP.

KACC enjoys a “strategic” status within KazAgro Holding. KACC is protected by cross-default provisions in KazAgro Holding’s Eurobond issue terms and plays a significant role in its business.

The stable outlook reflects our expectation of continued strong ongoing government support to KACC, resulting in maintenance of “very strong” capitalization and reliance on parental funding. It also reflects our assessment that KACC can continue to expect a “high” likelihood of timely and sufficient extraordinary government support in case of need. Our stable outlook also incorporates expectations of a very gradual decrease in direct lending to agribusiness, to be replaced by conditional funding to commercial banks, leasing companies, and micro credit institutions, which might be implemented by KACC or other KazAgro Holding entities.

A stronger probability of extraordinary support might lead us to take positive rating actions on KACC. Positive actions might also be triggered by increased visibility of KACC’s role within KazAgro Holding in the long term.

Negative rating actions on the sovereign might result in negative rating actions on KACC. Deterioration of KACC’s SACP, with sharply weaker capitalization or increasing problem assets, might pressure its creditworthiness, too. A significant revision of KACC’s strategy, leading to a scaling down of lending operations and of its overall importance for the government and KazAgro Holding, might also result in negative rating actions, although we do not think this is likely in 2013.