Fitch Affirms KazAgro at 'BBB'; off RWN; Outlook Stable

Wed May 7, 2014 12:16pm EDT

(The following statement was released by the rating agency) MOSCOW, May 07 (Fitch) Fitch Ratings has affirmed KazAgro National Managing Holding JSC's (KazAgro) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' and its Long-term local currency IDR of 'BBB+' and removed them from Rating Watch Negative (RWN). The agency has also affirmed KazAgro's Short-term foreign currency IDR at 'F3'. Fitch has also affirmed the 'BBB' Long-term foreign currency rating of KazAgro's senior unsecured USD1bn eurobond issue due 2023 (ISIN XS0934609016) and removed it from RWN. At the same time Fitch has also published the expected 'BBB(exp)' Long-term foreign currency rating of KazAgro's upcoming eurobond issue of up to an equivalent of EUR600m. KEY RATING DRIVERS The removal of the Rating Watch reflects receding risks that the share of market funding will consistently overshoot above 50% of total at the expense of state funding. Market funding above the 50% level would have widened the rating differential with Kazakhstan (BBB+/A-/Stable), the 100% owner of KazAgro, to two notches. KazAgro was placed on RWN on 8 April 2014. Following information received by the company, as well as audited statements for 2013 Fitch estimates that Kazagro's market funding will be at about 40% of total over the medium term, declining from a spike to 47% in 2014 subsequent to the upcoming issue of the eurobond of up to EUR0.6bn. The share of state-originated funding was close to 100% when Fitch first rated the issuer in 2013. Part of the upcoming bond will refinance a USD200m bank loan. The change in the funding structure was also partly caused by depreciation of the Kazakhstan tenge (KZT) by about 20% in February 2014 that led to a sharp increase of foreign currency-denominated market debt in KZT terms versus stable local currency-denominated state-originated funding. The agency treats equity (share capital), loans from the shareholder and KZT120bn loan from the National Fund as state-originated funding, and loans from third parties as market debt. KazAgro acts as the government's agent in implementing the state's agriculture policy. The agricultural sector is of high importance to the nation in terms of grain exports, production, employment and social issues. Fitch rates KazAgro based on a top-down approach under its criteria, taking into account continuous state support in the form of equity injections, subsidised budget loans and other state- originated funding. Fitch expects that KazAgro will continue to benefit from regular equity injections and access to subsidised government loans. In this respect the government is providing additional KZT20bn equity injections to KazAgro to cover the KZT depreciation losses estimated at KZT18bn. At end-April 2014, KazAgro's foreign currency debt was USD1.2bn, compared with USD645m placed in foreign currency bank accounts and deposits. RATING SENSITIVITIES Positive rating action may result from evidence of more formalised state support, including an explicit government guarantee on KazAgro's debt. An upgrade of the Republic of Kazakhstan could also trigger a positive rating action. Negative rating action could be triggered if market debt becomes the major funding source for KazAgro on a sustained basis, signalling a long-term shift in the company's financing approach. A negative rating action on the Republic of Kazakhstan would also be reflected in KazAgro's rating. A credit analysis on KazAgro is available at www.fitchratings.com. Contacts: Primary Analyst Behruz Ismailov Associate Director Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 125047 +7 495 95699 80 Secondary Analyst Vladimir Redkin Senior Director +7 495 95699 01 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012 and 'Rating of Public Sector Entities Outside the United States', dated 4 March 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Tax-Supported Rating Criteria here Rating of Public-Sector Entities - Outside the United States 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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