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July 14 (The following statement was released by the rating agency)
Fitch Ratings has assigned Kazakhstan's Joint Stock Company (JSC) National Management Holding Baiterek (Baiterek) a Long-term foreign currency Issuer Default Rating (IDR) of 'BBB+', a Long-term local currency IDR of 'A-', a National Long-Term rating of 'AAA(kaz)' and a Short-term foreign currency IDR of 'F2'. The Outlooks on the Long-Term ratings are Stable.
Fitch has also assigned a Long-term local currency rating of 'A-' and a National Long-term Rating of 'AAA(kaz)' to Baiterek's KZT100bn (equivalent to USD0.5bn) senior unsecured domestic bond purchased by the National Fund of the Republic of Kazakhstan.
KEY RATING DRIVERS
Baiterek's ratings are equalised with those of Kazakhstan (BBB+/A-/Stable) to reflect the high probability of support, in case of need, from the State. This is based on Baiterek's 100% state ownership and its special status as a national management holding company, specifically as the development arm of the government.
The ratings also reflect significant state-originated funding for Baiterek and associated risks of direct lending. Fitch uses its public-sector entities criteria and applies a top-down approach in its analysis of Baiterek.
Baiterek is one of three national management holding companies and performs a key function of the government in developing the national economy. It was established in May 2013 by a decree of the President of Kazakhstan. The other two management holding companies are Samruk-Kazyna (BBB+/A-/Stable) and KazAgro (BBB/BBB+/Stable).
Baiterek's activity is focused on industrial development, diversification of the economy, support of small and medium sized enterprises and affordable housing. The government has strict control and oversight over Baiterek. Its Board of Directors is chaired by Prime Minister of Kazakhstan. First Deputy Prime Minister, Deputy Prime Minister - Minister of Industry and New Technologies, Deputy Prime Minister - Minister of Finance, and Minister of Economy and Budget Planning are also on the Board.
Fitch expects that Baiterek and its subsidiaries will receive KZT300bn equity injections from the budget and KZT430bn subsidised loans from the National Fund of the Republic of Kazakhstan in 2014-2016. Fitch believes that additional direct or indirect support by the government would be highly likely if needed.
Fitch considers the ability of the State to extend extraordinary support, in case of need, as high. Kazakhstan's debt is low (13.5% of GDP as of 1 January 2014), while foreign-currency reserves are equivalent to about 47% of 2013 GDP and in the light of Baiterek's strategic role, Fitch believes the government's willingness to provide extraordinary support is also strong.
Baiterek had no market debt as of 1 July 2014, while consolidated debt of the group at end-2013 was about KZT900bn. Fitch rates Baiterek as a standalone entity and does not factor in the group's consolidated obligations.
Baiterek's ratings mirror those of the sovereign. A positive rating action would result from an upgrade of Kazakhstan. Conversely, a negative rating action on Kazakhstan or weakening of Baiterek's links with the State, as evidenced by issuance of material unguaranteed market debt, would lead to a downgrade. A credit analysis on Baiterek will shortly be available at www.fitchratings.com.