S&P Lowered Kazakhstan Niche Market Guarantee Provider KazAgroGarant To 'BB-/kzA-', Short-Term 'B' Affirmed
17.09.09 11:56
/Standard & Poor's, Moscow, September 16, 09/ - Kazakhstan Niche Market
Guarantee Provider KazAgroGarant Cut To 'BB-/kzA-'; Short-Term 'B' Affirmed;
Outlook Stable.
- We have applied of our revised methodology for rating government-related
entities and believe that, in case of financial distress, KazAgroGarant would
benefit from a "moderately high" likelihood of support from the Kazakh
government.
- We believe that KazAgroGarant's stand-alone credit profile has weakened,
given the entity's significant exposure to the Kazakh banking sector, and we
assess it at 'B'.
- We are lowering our long-term issuer credit and Kazakhstan national scale
ratings on KazAgroGarant to 'BB-/kzA-' and affirming the 'B' short-term
rating.
- The outlook is stable because the outlook on Kazakhstan is stable.
Standard & Poor's Ratings Services said today that it had lowered its long-term
issuer credit and Kazakhstan national scale ratings on KazAgroGarant, a state-
owned niche market guarantee provider based in the Republic of Kazakhstan
(foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3; Kazakhstan
national scale 'kzAAA') to 'BB-' and 'kzA-' from 'BB' and 'kzA'. The outlook is
stable. The short-term issuer credit rating is affirmed at 'B'.
The ratings were removed from CreditWatch with negative implications, where
they had been placed on CreditWatch on June 16, 2009. Before the CreditWatch
placement, the outlook was stable.
"The downgrade and removal from CreditWatch follow our application of our
revised methodology for rating government-related entities and also result from
KazAgroGarant's weakened stand-alone credit profile," said Standard & Poor's
credit analyst Boris Kopeykin.
The ratings on KazAgroGarant reflect our expectations of a "moderately high"
likelihood of timely and sufficient extraordinary support to KazAgroGarant from
the Kazakh government in case of financial distress, as well as KazAgroGarant's
"weak" stand-alone credit profile, which we assess at 'B'.
The ratings continue to be constrained by KazAgroGarant's untested business
model; the exposure of its investments to the Kazakh banking sector; and a high
guarantee risk concentration, with the largest guarantee larger than the
company's actual capital.
In accordance with our criteria for government-related entities, our view of a
"moderately high" likelihood of extraordinary government support is based on our
assessment of KazAgroGarant's:
- "Limited importance" for the government. This is because the company is
small and has just over Kazakhstani tenge (KZT) 2 billion in capital and
KZT4.5 billion worth of guarantees issued. The company's public-policy
mandate is relatively narrow: KazAgroGarant is one of eight government-
related entities (subsidiaries of KazAgro Holding) that the government
created to support the agricultural sector. Its specific purpose is to be the
only provider of warehouse receipt guarantees on agricultural commodities.
There is a track record of government support to KazAgroGarant in the form
of recurring capital injections, although the equity increase planned for 2009
was postponed until 2010.
- "Very strong" link with the Kazakh government. The Kazakhstan government
wholly owns KazAgroGarant through KazAgro Holding and its subsidiaries,
and privatization is not on the agenda. The government tightly monitors
KazAgroGarant's activities through KazAgro Holding.
The 'B' stand-alone credit profile reflects KazAgroGarant's untested business
model; the exposure of its investments to the Kazakh banking sector; and a high
guarantee risk concentration, with the largest guarantee larger than the
company's actual capital. However it also incorporates the ongoing support from
the Kazakh government in the form of capital injections and KazAgroGarant's
commitment to a policy of "no direct debt" and, so far, no calls on its
guarantees.
The outlook on KazAgroGarant is stable because the outlook on the Republic of
Kazakhstan is stable. We expect the government to continue to expand
KazAgroGarant's capital, although the exact amount of injections for 2010-2011
might fluctuate. Furthermore, we do not expect any changes in the policy and
regulatory framework that would challenge our expectations of a "moderately
high" probability of support to KazAgroGarant from the government in case of
financial distress.
"A negative rating action on Kazakhstan, or a change in our expectations of
extraordinary support to KazAgroGarant from the government due to signs of
weakening government support, could pressure the ratings," said Mr. Kopeykin.
A weakening stand-alone credit profile caused by significant deterioration in
capitalization levels or investment portfolio quality could also lead to
negative rating actions.
Ratings upside could result from a stronger sovereign credit profile, or a
higher probability of extraordinary government support for KazAgroGarant,
which we do not currently expected.
RELATED RESEARCH
- Enhanced Methodology And Assumptions For Rating Government-Related
Entities, June 29, 2009
- Principles Of Corporate And Government Ratings, June 26, 2007
Primary Credit Analyst:
Boris Kopeykin, Moscow, (7) 495-783-4062;
boris_kopeykin@standardandpoors.com
Secondary Credit Analysts:
Victor Nikolskiy, Moscow, (7) 495-783-4010;
victor_nikolskiy@standardandpoors.com
Additional Contact:
International Public Finance Ratings Europe;
PublicFinanceEurope@standardandpoors.com
[2009-09-17]