Fitch affirms ratings of Sovereign Wealth Fund Samruk-Kazyna; outlook Stable

/Fitch Ratings Moscow/Milan/London, October 10, 14, heading by KASE/ – Fitch Ratings has affirmed Kazakhstan's Joint Stock Company Sovereign Wealth Fund Samruk-Kazyna's (SK) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB+', Long-term local currency IDR at 'A-', National Long-term rating at 'AAA(kaz)' and Short-term foreign currency IDR at 'F2'. The Outlooks on the Long-term ratings are Stable. Fitch has also affirmed SK's senior unsecured domestic bond issues at Long- term local currency 'A-' and a National Long-term 'AAA(kaz)'. KEY RATING DRIVERS SK's ratings are equalised with those of Kazakhstan (BBB+/A-/Stable) and reflect 100% state ownership and SK's status as an extension of the government, in Fitch's view. They also reflect the strategic importance of the assets under SK's control and the sovereign wealth fund's strong financial position. Fitch uses its public-sector entities rating criteria and applies a top-down approach in its analysis of the fund. According to the republic's special law on sovereign wealth funds, SK's activity is focused on improving the sovereign wealth of the Republic of Kazakhstan by increasing the efficiency and value of major national companies. SK holds 100% or majority stakes in Kazakhstan's strategic companies operating in key sectors of the economy such as oil and gas, electricity, mining, transportation and other sectors. The total consolidated assets of the group are equivalent to about 50% of Kazakhstan's GDP. However, Fitch rates SK as an entity and does not factor in its group obligations although the government has used SK to channel funding to shareholding companies. Fitch considers SK's strategic importance, its control and oversight by the government of Republic of Kazakhstan and SK's integration within the national budgetary system as highly supportive of its credit quality. Fitch considers the ability and willingness of Kazakhstan to extend extraordinary support, in case of need, as very high. SK has received a significant amount of government loans at subsidised interest rates and equity injections, as well as subsidised loans from the National Bank and the National Fund since inception in 2008. These funds were mostly passed through to subsidiaries as part of the implementation of SK's quasi-fiscal and developmental roles. While Kazakhstan's and SK's standalone debt are low, the group's consolidated debt at end-2013 was KZT4trn (excluding loans from the government), equivalent to about 12% of 2013 GDP. The largest borrowers are exporters with foreign currency income streams, which reduce risks. SK's standalone debt to third parties (excluding debt to the state and its subsidiaries) was KZT555bn, while cash and cash equivalents and long-term bank deposits were KZT622bn at end-2013. Since 2013 SK has undergone two major transformations, which Fitch views as positive developments. Development Bank of Kazakhstan (BBB/F3/Stable) and other smaller assets were transferred from SK in 2013 to a new national management holding - Baiterek (BBB+/F2/Stable). This allowed SK to focus on its objective of increasing sovereign wealth, while Baiterek will concentrate on developmental projects, which by their nature may lead to financial losses. The other development is that SK is in the process of selling the banks it bailed out during the financial crisis. RATING SENSITIVITIES A positive rating action would result from an upgrade of Kazakhstan. Conversely, negative rating action on Kazakhstan or weakening of the sovereign wealth fund's links with the State would lead to a downgrade. A credit analysis on JSC Sovereign Wealth Fund Samruk-Kazyna is available at www.fitchratings.com Contacts: Primary Analyst Behruz Ismailov Associate Director +7 495 956 99 80 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 125047 Secondary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Julia Belskaya von Tell, Moscow Tel. + 7 495 956 9908/9901, julia.belskayavontell@fitchratings.com [2014-10-14]