Baku, Azerbaijan, June 6
By Elena Kosolapova- Trend:
Standard & Poor's Ratings Services affirmed its 'BB+' long-term and 'B' short-term issuer credit ratings on Kazakh Agrarian Credit Corporation (KACC), a Kazakh government entity that provides cheap lending to the agricultural sector, the rating agency reported on June 6.
The outlook is stable. At the same time, S&P affirmed 'kzAA-' Kazakhstan national scale rating on KACC.
"The long-term rating on KACC reflects our 'b+' assessment of its stand-alone credit profile (SACP), its strategic importance for the parent, KazAgro National Management Holding JSC, and our opinion of a "high" likelihood that KACC would receive timely and sufficient extraordinary support from the Kazakh government (Republic of Kazakhstan; BBB+/Stable/A-2, kzAAA/--/--), its ultimate owner, via KazAgro Holding," the agency said.
The 'b+' SACP reflects KACC's "moderate" business position, "very strong" capital and earnings, "moderate" risk position, "below-average" funding, and "moderate" liquidity.
S&P believes KACC has "strategically important" group status within KazAgro Holding. KACC is protected by cross-default provisions in KazAgro Holding's Eurobond issue terms and plays a sizable role in its business.
The stable outlook reflects the expectation of continued strong ongoing government support to KACC, resulting in the maintenance of "very strong" capitalization and reliance on parent funding. The agency also factor in the view that there's a "high" likelihood of timely and sufficient extraordinary government support to KACC if needed. In addition, the outlook incorporates the expectations of a very gradual decrease in direct lending to agribusiness, to be replaced by conditional funding to commercial banks. Still, S&P thinks KACC will retain its business position in lending to microcredit organizations in rural areas and in the livestock segment.
The agency might consider a positive rating action if it observed increased importance of KACC's role within KazAgro Holding over the longer term. A stronger probability of extraordinary government support also might lead the agency to take a positive rating action on KACC, although S&P does not currently expect this.
Any weakening in KACC's SACP, which could follow material deterioration in the credit quality of KACC's loan book and sharply increased credit costs, might prompt the agency to consider lowering the ratings on KACC. A marked shift in KACC's strategy, leading to a scaling down of lending operations and of the company's importance for the government and KazAgro Holding, might also result in a negative rating action, although the agency does not think this is likely in the next 12-18 months.
A negative rating action on Kazakhstan would not automatically result in a similar action on KACC, on which the long-term rating is currently three notches lower than that on the sovereign. This is because S&P still expects highly rated KazAgro Holding to provide support to its subsidiary KACC, owing to KACC's status as "strategically important." Nevertheless, because KACC's funding relies on budget loans, the agency would review the impact a negative rating on Kazakhstan, if one were to occur, on KACC's funding position.
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