Fitch affirms Kazakh KazAgro at ‘BBB’; off RWN

May 8. Trend

By Elena Kosolapova

Fitch affirms Kazakh KazAgro at 'BBB'; off RWNThe International Rating Agency Fitch Ratings has affirmed Kazakh KazAgro National Managing Holding JSC’s Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB’ and its Long-term local currency IDR of ‘BBB+’ and removed them from Rating Watch Negative (RWN). The agency has also affirmed KazAgro’s Short-term foreign currency IDR at ‘F3’, Fitch reported on April 8.

Fitch has also affirmed the ‘BBB’ Long-term foreign currency rating of KazAgro’s senior unsecured $1 billion eurobond issue due 2023 (ISIN XS0934609016) and removed it from RWN. At the same time Fitch has also published the expected ‘BBB(exp)’ Long-term foreign currency rating of KazAgro’s upcoming eurobond issue of up to an equivalent of 600 million euro.

“The removal of the Rating Watch reflects receding risks that the share of market funding will consistently overshoot above 50 percent of total at the expense of state funding,” the agency said.

Market funding above the 50 percent level would have widened the rating differential with Kazakhstan (BBB+/A-/Stable), the 100 percent owner of KazAgro, to two notches. KazAgro was placed on RWN on 8 April 2014.

Following information received by the company, as well as audited statements for 2013 Fitch estimates that Kazagro’s market funding will be at about 40 percent of total over the medium term, declining from a spike to 47 percent in 2014 subsequent to the upcoming issue of the eurobond of up to 0.6 billion euro.

KazAgro acts as the government’s agent in implementing the state’s agriculture policy. The agricultural sector is of high importance to the nation in terms of grain exports, production, employment and social issues.

Fitch rates KazAgro based on a top-down approach under its criteria, taking into account continuous state support in the form of equity injections, subsidised budget loans and other state- originated funding. Fitch expects that KazAgro will continue to benefit from regular equity injections and access to subsidised government loans.

Positive rating action may result from evidence of more formalised state support, including an explicit government guarantee on KazAgro’s debt. An upgrade of the Republic of Kazakhstan could also trigger a positive rating action.

Negative rating action could be triggered if market debt becomes the major funding source for KazAgro on a sustained basis, signalling a long-term shift in the company’s financing approach. A negative rating action on the Republic of Kazakhstan would also be reflected in KazAgro’s rating.