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May 16 (The following statement was released by the rating agency)
Fitch Ratings has affirmed KazAgroFinance's (KAF) Long-term Issuer Default Ratings (IDRs) at 'BBB-' and removed them from Rating Watch Negative (RWN). A Stable Outlook has been assigned. A full list of rating actions is provided at the end of this commentary.
KEY RATING DRIVERS
The removal of the RWN on KAF mirrors that on its parent KazAgro National Managing Holding JSC (KazAgro, BBB/Stable, see 'Fitch Affirms KazAgro at 'BBB'; off RWN; Outlook Stable ' dated 7 May 2014 at www.fitchratings.com), which in turn reflects the reduced risk that the share of KazAgro's market funding will consistently overshoot 50% of the total at the expense of state funding, thereby reducing 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). This is based on 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 the 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.
KAF's ratings are likely be move in tandem with those of the sovereign and KazAgro.
Fitch may downgrade KAF's ratings if the agency believes that support propensity in respect to KAF has weakened, for example, if the company's financial profile deteriorates considerably as a result of asset quality deterioration or increased leverage without support being made available.
The rating actions are as follows:
Long-term foreign and local currency IDRs: affirmed at 'BBB-', removed from RWN, Stable Outlook
Short-term foreign currency IDR: affirmed at 'F3', removed from RWN
National Long-term rating: affirmed at 'AA(kaz)', removed from RWN, Stable Outlook
Support Rating: affirmed at '2', removed from RWN
Support Rating Floor: affirmed at 'BBB-', removed from RWN