Upgrading of Kazakhstan rating has not dispersed investors' anxieties

/REUTERS, Almaty, Oljas Auezov, June 5, 03/ - Upgrading of Kazakhstan sovereign rating by Standard & Poor's, which remained the country in speculative category, does not bring significant advantages to the country, but points on presence of serious problems, analysts believe. Last week S&P upgraded to Kazakhstan the long-term rating of borrowings in foreign currency to "ВВ+" from "ВВ", having placed the country on the same level with Egypt and Salvador. Market's participants and analysts waited for rating upgrading in autumn and by two degrees at once - to investment "BBB-", which would significantly expand range of potential purchasers of the country's debt instruments and cheapen borrowings. S&P assigned "ВВВ-" rating to Bulgaria, Croatia, Thailand and Mexico. "Practical consequences of rating upgrading are limited by the fact that in the nearest future Kazakhstan will scarcely borrow money at international markets that is concerned with the legislation, which permit to borrow only in presence of budget deficit", - president of Deutche Bank Securities Kazakhstan Askar Yelemesov believes. Kazakhstan government has performed the budget of 2002 almost without deficit, and included into budget-2003 rather small deficit equaling to $550 m. or 1.9% of GDP, which it will easily finance at the expense of domestic borrowings. Foreign borrowings are much more important for big state-owned companies, which have to modernize senescent infrastructure and finance expensive projects, which are concerned with development of rich with oil Caspian shelf, and banks, which aggressively increase assets, increasing terms of crediting at the same time. However banks and state-owned companies will hardly get profit from upgrading of the sovereign rating for their ratings will not be automatically reconsidered. Moreover, S&P has emphasized, that upgrading of Kazakhstan rating reflects mainly good prospects of growth of raw national economy and improvement of the fiscal position of the government whereas institutional-legal system and transparency of state management are the factors, which influence ratings of all Kazakhstan borrowers, - leave much to be desired. "In the short-term outlook (this rating upgrading by S&P) will not directly influence banks and companies", - Yelemesov is sure. "The next step (on rating scale) will have promising consequences", - he added. Upgrading of Kazakhstan rating to investment level Ваа3 by Moody's in September of 2002 let largest Kazakhstan banks float big eurobonds issues and abruptly pushed upward prices, which had been formed by that time at Kazakhstan securities market. According to Yelemesov's words, presence of investment rating from two leading agencies will let Kazakhstan pretend to own niche at international markets of capitals. "Any investor can provide for the stake for Kazakhstan in its portfolio that will make credit resources cheaper and more long-term for domestic borrowers ", - he said. "SELF-SATISFACTION" OF THE GOVERNMENT AND COMPLAINTS OF INVESTORS S&P thinks that in order to move to investment category "with two foots" Kazakhstan should improve business climate, state management and advance in structural and political reforms. At the same time foreign investors and observers, on the contrary, state about worsening of business climate on the background of proclaimed by the government equality of domestic and foreign investors and following of "balance of interests". "Although general indicators of business climate in Kazakhstan, according to estimation of the World bank and EBRD, improved, during amendment to economic growth it's seen that actually they have worsened", - says the distributed in this week report of regional director of the World bank on Central Asia Dennis de Tray. "Many (foreign) investors complain about worsening of business climate in Kazakhstan", - said adviser of the first vice-president of oil and gas state- owned company Kazmunaigas Kozhakhan Abenov at the conference American Alumni Club (AAC), which in the end of May collected graduates of colleges in Kazakhstan and business representatives. Investors were especially put on their guard by dispute of Kazakhstan government and oil giant ChevronTexaco - joint owners of the largest in the country oil extracting company Tengizshevroil, which was about to gave up for lost the project of expansion of extraction at the giant field Tengiz. "The occasion concerning Tengizshevroil negatively influenced Kazakhstan image", - said adviser of the president of state-owned company on investments attracting Kazinvest Mikael Krauze, who was also speaking at the conference of AAC. "The government became a bit self-satisfied ", - he thinks. GOVERNMENT DOES NOT HURRY TO GO OUT OF ECONOMY Having upgraded Kazakhstan rating by one degree and having remained it in speculative zone, S&P made it clear that government's thick wallet and rational budget-monetary policy do not cancel the necessity to reform economy and increase management effectiveness at all. However Kazakhstan authorities do not especially listen to opinion of rating agency's experts. Thus, in several months after S&P critically spoke about often changing of state-owned companies' top-managers, the government changed the head of oil and gas holding Kazmunaigas, who was at this post a bit more than a year. Privatization of large companies for which S&P calls, recently is limited by sale concerning rather small state blocks of shares of enterprises, which are controlled by strategic investors. At the same time, at the end of last year the government returned air company Air Kazakhstan, which had been burdened with debts to the state property, and yet did not inform intention even in partially to privatize any of the large companies, which completely belonged to the state, in foreseeable future. Having interrupted privatization of economy, raw Kazakhstan stepped on the way of manufacturing productions at the expense of treasury, having spent state-owned funds to authorized capitals of state institutions like Development bank, innovation and investment funds. Such the policy did not please bankers, who think they could carry out this function by themselves. "Private sector could efficiently invest these funds if government, for example, held auction sale of investment resources by means of tenders", - analyst of National economic development center Nadir Burnashayev thinks. "The government too often interfere with business", - Krauze from Kazinvest is sure. Kazakhstan President Nursultan Nazarbayev in his April message to the people recommended to the government to stimulate private investments by decreasing of taxes. The government at once offered the parliament to decrease rates of income and social taxes, however it stated that foreign oil companies - main investors into the country's economy, - on the contrary, uses too liberal tax treatment, and promised to toughen it. Investors, in their turn, complain that executive and tax authorities do not cope with planning and administrating of already existing taxes. "Tax administrating is still weak... planning (of oblasts') budgets keenly need reform", - complained at the conference of ААС director on corporate taxes of oil company Hurricane Overseas Ltd Tom Minnehen. "Laws are good, but when the matter concerns administrating, especially in regions, there appear big doubts in full correspondence of the system with law", - Yelemesov from DB Securities thinks. [2003-06-05]