S&P affirms Kazakh government-related Samruk-Kazyna's ratings

S&P affirms Kazakh government-related Samruk-Kazyna's ratings

Baku, Azerbaijan, July 11

By Elena Kosolapova - Trend:

Standard & Poor's Ratings Services affirmed its long- and short-term local and foreign currency issuer credit ratings on Kazakh government-related entity Samruk-Kazyna at 'BBB+/A-2', the rating agency reported on July 11. The outlook is negative.

"The ratings on SK reflect our classification of the fund as a GRE and our assessment that there is an "almost certain" likelihood that the government of Kazakhstan would provide timely and extraordinary support to SK if it ran into financial difficulties," the agency said.

In accordance with the criteria for rating GREs, the view that there is an "almost certain" likelihood of extraordinary government support is based on SK's "integral" link with the government, which fully owns the fund and offers strong direct and implicit support, including regular capital injections and SK's "critical" role as the government's main vehicle for implementing its agenda for strategic industrialization and long-term economic sustainability and diversification.

S&P assess SK's stand-alone credit profile (SACP) at 'b+', based on the assessment of its business risk profile as "fair" and its financial risk profile as "highly leveraged." S&P assesses SK on a consolidated basis because the agency views it as a long-term strategic investor in national companies.

The assessment of SK's business risk profile reflects the view of the only fair quality of the group's key assets in the oil and gas sector and transportation sector, which together are responsible for over 80 percent of the group's profits.

The assessment of the group's financial risk profile as "highly leveraged" reflects the expectation of significantly negative free operating cash flow, as the agency anticipates that the group's heavy investments and potential acquisitions are likely to increase already relatively high consolidated debt.

SK's 'b+' SACP incorporates a one-notch positive adjustment for the comparable rating analysis. This reflects the view of SK's ongoing state support, including access to long-term financing from the government and priority access to oil assets that are being sold in Kazakhstan.

S&P views SK's liquidity as "adequate," with the ratio of liquidity sources to liquidity uses above 1.2x at the consolidated level.

The negative outlook reflects the outlook on the long-term sovereign ratings on Kazakhstan, based on the expectation that the agency is unlikely to change the assessment of SK's critical role for and integral link with the government. S&P could raise or lower the ratings on SK if it raised or lowered the ratings on Kazakhstan.

The agency could lower the ratings on SK if it perceived any signs of weakening sovereign support--for example, SK deviating from its policy role or changes to how the government manages its assets--which led us to revise downward our assessment of SK's role for and link with the government.

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