S&P affirms ratings of Sovereign wealth fund Samruk-Kazyna (Kazakhstan); outlook stable
/Standard & Poor's, London, July 9, 13, heading by KASE/ – Standard & Poor's
Ratings Services today affirmed its long- and short-term local and foreign
currency credit ratings on Kazakhstan-based government-related entity Samruk-
Kazyna (SK) at 'BBB+/A-2'. The outlook is stable.
We also affirmed the Kazakhstan national scale rating at 'kzAAA'.
Under our criteria for rating government-related entities (GREs), the ratings on
Kazakhstan-based Samruk-Kazyna (SK) are equalized with those on the Republic of
Kazakhstan (foreign currency BBB+/Stable/A-2; local currency BBB+/Stable/A-2;
Kazakhstan national scale 'kzAAA'). This reflects our view of an "almost
certain" likelihood of the government providing timely extraordinary support
sufficient to service all debt, if needed.
Our assessment of the "almost certain" likelihood of extraordinary support is
- SK's "critical" role for the government of Kazakhstan. SK is the government's
main vehicle for implementing the strategic industrialization agenda and long-
term economic sustainability and diversification agenda. It controls
essentially all strategic assets in Kazakhstan.
- SK's "integral" link with the government, which reflects our view that the
100% government-owned SK essentially acts on behalf of the government. The
government plays a decisive role in SK's operations. We believe that a default
by SK would cause the government significant reputational damage.
SK is a 100% state-owned holding company. It consolidates almost all of
Kazakhstan's state-owned assets, and manages these assets on behalf of the
government. Among the many assets it manages are national oil company JSC
NC KazMunayGas, railway operator Kazazkhstan Temir Zholy, electricity company
KEGOC, telecom operator Kazakhtelecom, and mining company Kazatomprom.
In our view, SK performs an important public policy role, which is formally
defined by law. It plays a central role in meeting the government's key
economic, political, and social objectives. Indeed, SK has been implementing
key national policies since it was established in 2008, under a presidential
decree. It played a key role in implementing the government's $20 billion
stabilization plan, adopted in 2008 during the crisis. It has also been playing
a pivotal role in implementing the government's $20 billion anti-crisis
stabilization plan, and the government's Development Plan 2020-aimed at
industrialization and economic diversification. Many of the assets SK controls
play an important economic role providing essential infrastructure and
In our view, SK acts essentially on behalf of the government. It is highly
integrated with the government, and the government plays a decisive role in its
operations. By law, all board members are heads of central executive bodies and
the prime minister of Kazakhstan is the chairman. Although the government
plans to sell minority stakes in several subsidiaries of SK through the
"People's IPO" program launched in 2012, we understand that SK will retain
control over these assets. Moreover, there are no plans to even partially
In 2012, the government refocused SK's priorities concerning its core business
and core competencies. It now concentrates solely on the government's large
industrialization program. As part of this strategy, the government is
transferring development institutions, such as Development Bank of Kazakhstan
(DBK) away from SK and into a newly established national development agency.
Moreover, SK has been tasked with selling the government's stakes in the
banking sector, acquired during the crisis years of 2008-2009. We do not expect
that either of these developments will affect our view of the role and link
between SK and the government, and we do not expect any impact on the "almost
certain" likelihood that the government of Kazakhstan would provide timely and
extraordinary support to DBK.
We assess SK's stand-alone business profile (SACP) as 'b+', based on its "fair"
business risk profile, "highly leveraged" financial risk profile, and "adequate"
liquidity, as our criteria define these terms. The key factors constraining SK's
stand-alone business risk profile include the only-fair credit quality of its
major investments such as KazMunayGas, KTZ, and KEGOC, and its significant
dependence on the oil and gas segment, which generates most of the group's
These risks are mitigated by SK's control over essentially all strategic
industrial assets in Kazakhstan--a portfolio that is as diversified as it can
be. An important factor in our assessment of the financial risk profile is our
expectation of these assets' profitable operations and ongoing support from the
government via favorable regulations and access to commercially attractive
assets. The key factor constraining our assessment of financial risk is the
lack of transparency and predictability regarding SK's financial policy,
notably future investments, disposals, or asset transfers to sister GREs. SK's
accounts show a number of large write-offs and reversals, reflecting, among
other things, the revaluation of assets in the financial sector and the BTA
We assess SK's liquidity as "adequate," with sources of liquidity to uses of
liquidity above 1.2x.
At Dec. 31, 2012 (the latest reporting date), key sources of liquidity at the
parent level included:
- Cash balances of Kazakhstani tenge (KZT) 432 billion, of which KZT395
billion is with the central bank, and short-term bank deposits of KZT160
billion. Dividend and interest income from subsidiaries is likely to be lower
than in 2012, because income in that year was boosted by one-offs;
- We understand that SK recently received $200 million from China Development
Bank to finance a matching loan to Kazakhmys, and placed a KZT255 billion bond
with the government.
Key uses of liquidity at Dec. 31, 2012, included:
- Relatively low short-term debt of KZT82 billion. Most debt to parties other
than the government or subsidiaries is medium or long term. In addition, the
full amount of liabilities guaranteed by SK is KZT480 billion.
- Investments, including a KZT249 billion (30%) stake in Kazzink and a $200
million loan to Kazakhmys already made in early 2013.
The stable outlook reflects our outlook on the long-term sovereign ratings on
Kazakhstan and our expectation that SK's "critical" role in the economy and
"integral" link with the government is unlikely to change.
We could raise or lower the ratings on SK if we raised or lowered the sovereign
ratings. Any signs of weakening sovereign support, either because of a deviation
from SK's policy role or the government changing how it manages its assets, or
because of a weakening link with the government, may change our assessment
of SK's role in and link with the government. This would lead to downward
pressure on the ratings.
Primary Credit Analyst:
Ana Jelenkovic, London, (44) 20-7176-7116;
Secondary Contact: Elena Anankina, Moscow, (7) 495-783-4130;