Fitch places Kazakhstan’s KazAgroFinance on Rating Watch Negative

April 18. Trend

By Elena Kosolapova

Fitch places Kazakhstan's KazAgroFinance on Rating Watch NegativeInternational Rating Agency Fitch Ratings has placed Kazakh KazAgroFinance’s Long-term Issuer Default Ratings (IDRs) of ‘BBB-‘ on Rating Watch Negative (RWN), the agency reported on April 18.

Short-term foreign currency IDR: ‘F3’, placed on RWN

National Long-term rating: ‘AA (kaz)’, placed on RWN

Support Rating: ‘2’, placed on RWN

Support Rating Floor: ‘BBB-‘, placed on RWN

“The RWN on KazAgroFinance mirrors that on its parent KazAgro National Managing Holding JSC (BBB/RWN), which in turn reflects Fitch’s concerns about KazAgro’s intention to significantly increase wholesale borrowings, as this may reduce the government’s support propensity for KazAgro and consequently KazAgroFinance,” the agency said.

KazAgroFinance’s IDRs, National Long-term and Support Ratings factor in the likelihood of support the bank may receive, if needed, from Kazakh authorities (through KazAgro), given the track record of capital injections, the low cost of potential support, KazAgroFinance’s status as a material subsidiary of KazAgro and the significant risks of reputational and market access damage in case of KazAgroFinance’s default.

At the same time, the current two-notch differential between KazAgroFinance ‘s foreign currency IDR and that of the Kazakh sovereign reflects KazAgroFinance ‘s less prominent policy role as a development institution and lesser importance for the country’s economy and financial system relative to other government-owned institutions in Kazakhstan; and the company’s indirect government ownership, which may in some scenarios impact the timeliness of support. KazAgroFinance’s vulnerable asset quality and growth plans also mean that its leverage may over time increase significantly from the current low level.

Fitch expects to resolve the RWN on KazAgroFinance within six months once the parent’s RWN is resolved. In resolving the RWN on KazAgroFinance, Fitch will consider the rating action on the parent, as well as the role of KazAgroFinance in the group and the implications of the increased market borrowings of KazAgro for the government’s support propensity towards KazAgroFinance.

Fitch may downgrade KazAgroFinance’s ratings if the parent’s ratings are downgraded and the agency believes that support propensity in respect to KazAgroFinance has weakened.

The affirmation of KazAgro’s ratings and/or evidence that support for KazAgroFinance has not materially deteriorated could result in affirmation of KazAgroFinance’s ratings.