Kazakh Agrarian Credit Corp. $136M Dresdner Loan Rated 'BB+/kzAA'; BB+/kzAA/B Ratings Affirmed S&P Rts Dresdner Loan To KACC BB+/kzAA'; Afrms Other KACC Rtgs

/Standard & Poor's, Moscow, April 22, 08/ - Standard & Poor's Ratings Services said today that it assigned its 'BB+' long-term debt and 'kzAA' Kazakh national scale ratings to the U.S.-dollar 136 million senior unsecured loan to be provided to Kazakh Agrarian Credit Corp. (KACC) by Dresdner Bank AG (A/Negative/A-1). At the same time the 'BB+' long-term issuer credit, 'B' short-term issuer credit, and 'kzAA' Kazakhstan national scale ratings were affirmed. The outlook is stable. KACC is based in the Republic of Kazakhstan (foreign currency BBB-/Stable/A-3, local currency BBB/Stable/A-3, Kazakhstan national scale rating 'kzAAA'). The loan matures on March 1, 2013, and has semiannual interest payments of 8.03% per annum. The ratings on the loan mirror those on the borrower. "The ratings on KACC are supported by strong support from the government to the company," said Standard & Poor's credit analyst Boris Kopeykin. The state owns 100% of KACC through KazAgro Holding. KACC receives capital injections from the government, secured until 2011. The capital injections in 2008 will be about Kazakhstani tenge 10 billion ($83 million), leading to an improvement in our capitalization ratio for KACC to approximately 55%. We use our government-related entities criteria for rating KACC. We have applied a top-down approach in assessing KACC, reflecting the strong likelihood that the company would receive extraordinary support from the national government in case of financial distress. The rating on KACC is therefore higher than if we rated it on a stand-alone basis. The ratings are constrained by KACC's rapid expansion of its loan portfolio in the potentially risky agricultural sector, which leaves the business model untested. In addition, the company's lending concentration is high, with the 20 largest borrowers accounting for about 40% of gross loans. The loan from Dresdner Bank, which will exceed 50% of KACC's capital in 2008, represents a liquidity risk. The loan contains a series of covenants that would allow the bank to demand loan repayment ahead of schedule. The loan agreement also contains ratings triggers: If both Standard & Poor's and Moody's downgraded KACC by one notch each, or one of the two rating agencies downgraded the company by two notches, it also leads to an acceleration of payments. This creates the potential for significant liquidity pressure on KACC, as it would be almost impossible for KACC to repay the loan ahead of schedule with its own resources. However, we expect that, in such a scenario, the central government would provide a budget loan or capital injection to KACC, which would enable the company to meet its obligation on a timely basis, which mitigates much of the liquidity risk. The stable outlook on KACC reflects that on the Republic of Kazakhstan. We expect the government to continue to expand KACC's capital rapidly, by approximately $60 million-$80 million annually. Furthermore, we do not expect any changes in the policy and regulatory framework that would weaken KACC's policy role, at least until 2011. "Nevertheless, a change in KACC's policy role, or signs of weakening government support, could pressure the ratings," said Mr. Kopeykin. Rapid growth in KACC's debt and foreign currency risks would making it more difficult for the government to provide timely support, and could also pressure the ratings. Ratings upside would result only from the credit profile of the sovereign becoming stronger. Primary Credit Analyst: Boris Kopeykin, Moscow (7) 495-783-4062; Secondary Credit Analyst: Eugene Tarzimanov, Moscow (7) 495-783-4071 Additional Contact:: GroupE-MailAddress@standardandpoors.com [2008-04-22]