Baku, Azerbaijan, May 15
By Elena Kosolapova - Trend:
Fitch Ratings has affirmed KazAgroFinance's (KAF) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-'. The Outlooks are Stable.
Long-term foreign and local currency IDRs affirmed at 'BBB-'; Outlook Stable
Short-term foreign currency IDR affirmed at 'F3'
National Long-term rating affirmed at 'AA (kaz)'; Outlook Stable
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB-'
Senior unsecured debt affirmed at 'BBB-/AA (kaz)'
KAF's IDRs, National Long-term rating, Support Rating and Support Rating Floor reflect Fitch's view of the high probability of state support which is likely to be channelled to the company through the state-owned KazAgro National management holding JSC (BBB/Stable), the statement said.
This is primarily based on KAF's important policy role in the development of Kazakhstan's agricultural sector through the provision of state-subsidised financial leasing and project financing to agricultural enterprises, especially small and medium-sized farms.
KAF's ratings also reflect a solid track record of equity and non-equity funding provision by the state to the company and the limited cost of potential support due to KAF's small size, adequate capitalisation, and limited outstanding third-party liabilities, Fitch said.
The current two-notch differential between KAF's Long-term foreign currency IDR and Kazakhstan's 'BBB+' rating reflects the company's less prominent policy role as a development institution, its lesser importance for the country's economy and financial system relative to other government-owned institutions in Kazakhstan, in particular Development Bank of Kazakhstan (BBB/Stable), and KAF's indirect government ownership, which in Fitch's view, may have negative implications for the timeliness of support, especially if there is the need to prioritise support among a significant number of Kazakh quasi-sovereign entities, Fitch said.
KAF's ratings remain supported by its high strategic importance for the parent's group due to the cross-default linkage between the parent and the subsidiary. KAF qualifies as a 'material subsidiary' under the term of the parent's USD2bn Eurobond issued in 2013 as the company comprised 28% of KazAgro's total assets at end-2014. The Eurobond issue includes a cross-default clause, which references the company's material subsidiaries defined as entities accounting for more than 10% of either the assets or revenues of the group.
KAF's rapid 34% credit expansion in 2014 obscures somewhat its problem exposure growth driven partly by the tenge appreciation against the Russian rouble and the resultant pressure on Kazakhstan's agricultural sector. Non-performing exposures grew moderately to 11% of gross loan and leasing exposures at end-2014 from 9% at end-2013, and restructured exposures contracted to 16% from 20%. Reserves covered a moderate 74% of non-performing exposures at end-2014. Mitigating the credit risk to an extent, KAF operates mostly on the basis of state-subsidised programmes, which supports borrower/lessee debt servicing.
Funding is mainly sourced from Kazagro (74% of total liabilities). The company expects considerable further funding injections in the medium to long term as part of the government stimulus for the agricultural sector. KAF's total foreign debt was limited to small USD105m (12% of liabilities) at end-2014, of which only USD24m is due in 2015, Fitch said.
KAF's ratings are linked to the ratings of the sovereign and KazAgro and are likely to move in tandem with them. The company's ratings could also be downgraded if its financial profile deteriorates considerably as a result of asset quality weakening or increased leverage, without support being made available.
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