S&P affirms credit ratings of Sovereign Wealth Fund Samruk-Kazyna at BBB-/A-3; outlook Negative

25.07.16 18:58
/Standard & Poor's, Moscow, 22.07.16, heading by KASE/ — S&P Global Ratings said today that it has affirmed its 'BBB-/A-3' long- and short-term issuer credit ratings on Kazakh government holding company Samruk-Kazyna (SK). The outlook is negative. At the same time, we affirmed our 'kzAA' Kazakhstan national scale rating on SK, and our 'BBB-' rating on SK's senior unsecured debt. The ratings on SK reflect our classification of the company as a government- related entity (GRE) with an almost certain likelihood of receiving timely and sufficient extraordinary support from the government of Kazakhstan in the event of financial difficulties. In accordance with our criteria for rating GREs, this assessment stems from our view that SK has an: - Integral link with the government, which fully owns the company. SK has a special public status of a national management holding company. We believe the government is unlikely to reduce its stake in or control of SK at least until after 2018. This is despite privatization plans regarding some subsidiaries controlled by SK, which the government announced in 2015. Kazakhstan's prime minister heads SK's board and the government is closely involved in determining SK's strategic decisions; and; - Critical role as the government's main vehicle for implementing its agenda for strategic industrialization and long-term economic sustainability and diversification. SK controls essentially all strategic corporate assets in Kazakhstan, worth an equivalent of more than 40% of GDP, including those in the oil and gas sector. SK also plays a quasi-fiscal role of retransferring funds from the national oil fund to the economy. SK's strategic role is set out in several key government strategic documents and policy statements. SK has been implementing key national policies since it was established by a presidential decree in 2008. It consolidates almost all of Kazakhstan's state- owned corporate assets, including those in such key sectors as oil and gas, power generation, transport, and mining, and manages them on behalf of the government, playing a central role in meeting key economic, political, and social objectives. By law, all SK's board members are heads of central executive bodies, and Kazakhstan's prime minister is the chairman. Through regular board meetings, the government plays a decisive role in SK's operations. SK, as the holding company, must be 100% owned by the government by law. Although in 2015 the government announced plans to privatize some of SK's assets, including those in the energy, mining, and transport sectors, to attract foreign direct investment and stimulate economic growth, the timing and scope of privatization are uncertain. Our base-case assumption is that the government and SK will retain control over key assets over the next two to three years and will only present more concrete proposals regarding privatization by 2018. In our view, SK benefits from adequate, ongoing, and timely extraordinary support from the government through several channels: concessional budget loans and regular capital injections from the budget, purchases of SK's bonds by the national oil fund and the state single pension fund, lending from government-owned Development Bank of Kazakhstan, as well as support from the National Bank of Kazakhstan (central bank). In 2015, on a consolidated basis, SK received over Kazakhstani tenge (KZT) 1.6 trillion (about $4.7 billion or 2.5% of GDP) from the state via these channels. In particular, the government and the central bank provided extraordinary support, via SK, to repay the debt of one of SK's key subsidiaries KazMunaiGas, which faced foreign-currency denominated debt maturities. The negative outlook on SK mirrors that on the long-term sovereign credit ratings on Kazakhstan. We could lower the ratings on SK if we perceived any signs of weakening sovereign support, for example if SK deviates from its policy role, or if privatization of its key assets, including those in the oil industry proceeds faster than we currently assume. This could lead us to negatively reassess the company's role for and link with the government. A downgrade of SK could also follow if we lowered our sovereign rating on Kazakhstan. We would revise our outlook on SK to stable if we were to revise our outlook on the sovereign to stable. Primary Credit Analyst: Karen Vartapetov, Moscow (7) 495-783-40-18; karen.vartapetov@spglobal.com Secondary Contact: Maxim Rybnikov, London (44) 20-7176 7125; maxim.rybnikov@spglobal.com Additional Contact: SovereignEurope; SovereignEurope@standardandpoors.com [2016-07-25]