Fitch Places Kazakhstan's KazAgroFinance on Rating Watch Negative

Thu Apr 17, 2014 9:04am EDT

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(The following statement was released by the rating agency) LONDON/MOSCOW, April 17 (Fitch) Fitch Ratings has placed KazAgroFinance's (KAF) Long-term Issuer Default Ratings (IDRs) of 'BBB-' on Rating Watch Negative (RWN). A full list of rating actions is provided at the end of this commentary. KEY RATING DRIVERS The RWN on KAF mirrors that on its parent KazAgro National Managing Holding JSC (KazAgro, BBB/RWN, see "Fitch Places Kazakhstan's KazAgro on Rating Watch Negative" dated 8 April 2014 at www.fitchratings.com), which in turn reflects Fitch's concerns about KazAgro's intention to significantly increase wholesale borrowings, as this may reduce the government's support propensity for KazAgro and consequently KAF. KAF's IDRs, National Long-term and Support Ratings factor in the likelihood of support the bank may receive, if needed, from Kazakh authorities (through KazAgro), given the track record of capital injections, the low cost of potential support, KAF's status as a material subsidiary of KazAgro and the significant risks of reputational and market access damage in case of KAF's default. At the same time, the current two-notch differential between KAF's foreign currency IDR and that of the Kazakh sovereign reflects (i) KAF's less prominent policy role as a development institution and lesser importance for the country's economy and financial system relative to other government-owned institutions in Kazakhstan; and (ii) the company's indirect government ownership, which may in some scenarios impact the timeliness of support. KAF's vulnerable asset quality and growth plans also mean that its leverage may over time increase significantly from the current low level. For more details on KAFs rating drivers see "Fitch Affirms Development Bank of Kazakhstan at 'BBB'; Upgrades KazAgroFinance to 'BBB-'" dated 19 November 2013 at www.fitchratings.com. RATING SENSITIVITIES Fitch expects to resolve the RWN on KAF within six months once the parent's RWN is resolved. In resolving the RWN on KAF, Fitch will consider the rating action on the parent, as well as the role of KAF in the group and the implications of the increased market borrowings of KazAgro for the government's support propensity towards KAF. Fitch may downgrade KAF's ratings if the parent's ratings are downgraded and the agency believes that support propensity in respect to KAF has weakened. The affirmation of KazAgro's ratings and/or evidence that support for KAF has not materially deteriorated could result in affirmation of KAF's ratings. The rating actions are as follows: Long-term foreign and local currency IDRs: 'BBB-', placed on RWN Short-term foreign currency IDR: 'F3', placed on RWN National Long-term rating: 'AA (kaz)', placed on RWN Support Rating: '2', placed on RWN Support Rating Floor: 'BBB-', placed on RWN Contact: Primary Analyst Sergey Popov Associate Director +7 495 956 9981 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Aslan Tavitov Associate Director +7 495 956 7065 Committee Chairperson Alexander Danilov Senior Director +7 495 956 2408 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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