Fitch affirms long-term default ratings of kazAgroFinance at level "BВВ-"; outlook Stable
15.05.15 17:39
/Fitch Ratings, Москва, May 14, 15, heading by KASE/ – Fitch Ratings has
affirmed KazAgroFinance's (KAF) Long-term foreign and local currency Issuer
Default Ratings (IDRs) at 'BBB-'. The Outlooks are Stable. A full list of rating
actions is at the end of this commentary.
KEY RATING DRIVERS
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). 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.
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.
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.
The company's capitalisation remained solid with 44% Fitch Core Capital (FCC)/
risk-weighted assets (RWAs) ratio at end-2014 providing a significant capacity
to absorb potential losses and/or to expand credit portfolio. Fitch believes
that KAF's government and parental non-equity funding, comprising 45% of RWAs
at end-2014, could potentially be converted into equity, if needed.
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.
RATING SENSITIVITIES
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.
The rating actions are as follows:
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)'.
Contacts:
Primary Analyst
Roman Kornev
Director
+7 495 956 7016
Fitch Ratings CIS Limited
26 Valovaya Street
Moscow 115054
Secondary Analyst
Timur Lebedev
Analyst
+7 495 956 9983
Committee Chairperson
Olga Ignatieva
Senior Director
+7 495 956 6906
Media Relations: Julia Belskaya von Tell, Moscow,
tel. + 7 495 956 9908/9901, julia.belskayavontell@fitchratings.com
[2015-05-15]