OREANDA-NEWS.  Fitch Ratings has downgraded Kazakhstan public sector entities (PSEs) JSC Sovereign Wealth Fund Samruk-Kazyna (SK) and JSC National Management Holding Baiterek's (Baiterek) Long-term foreign currency IDRs to 'BBB' from 'BBB+'.

At the same time Fitch has also downgraded KazAgro National management holding JSC (KazAgro) and Kazakhstan Mortgage Company's (KMC) Long-term foreign currency IDRs to 'BBB-' from 'BBB'. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
The rating actions follow Fitch's recent downgrade of Kazakhstan's Long-term foreign currency IDR to 'BBB' from 'BBB+' (see 'Fitch Downgrades Kazakhstan to 'BBB'; Outlook Stable' dated 29 April 2016 at www.fitchratings.com).

Fitch uses its PSE rating criteria, top-down approach, in its analysis of four Kazakhstan PSEs and views them as being credit-linked to the sovereign. The ratings of the four entities do not extend to their subsidiaries' obligations.

SK's IDRs remain equalised with those of Kazakhstan, reflecting its strong links with the sovereign and high propensity of state support. This is evidenced by SK's special legal status, its strategic role as an extension of the government in managing its core assets, strong operational and financial integration with the government, and tight control by the latter along with maintenance of 100% state ownership.

Baiterek's IDRs remain equalised with the sovereign IDRs, which reflects the company's unchanged special legal status, its strategic importance for state policy on economic development and diversification, and strict state control. Fitch considers that the recently announced large-scale national privatisation programme will not weaken these major rating factors.

KazAgro's IDRs have been downgraded and a one-notch rating differential from Kazakhstan's ratings has been maintained, reflecting a "mid-range" degree of integration in light of market-originated funding. Unchanged special legal status, strategic importance for state policy on agriculture support and strict state control over the company underpin ongoing credit linkage with its sponsor.

The Outlook remains Negative after its recent revision from Stable (see 'Fitch Revises Outlook on KazAgro to Negative, affirms at 'BBB' dated 28 April 2016 at www.fitchratings.com), reflecting the risk of further weakening of the integration with the Kazakhstan's government in light of a declining share of state-originated funding.

KMC's IDRs remain one notch below the sovereign, which Fitch considers the company's ultimate sponsor, and reflects full ownership by the government through Baiterek, its high strategic importance in social housing and strong control and oversight by the state. The one-notch rating differential factors in a "mid-range" assessment of its integration with the state as KMC's financial flows and the fact that KMC's debt is not consolidated in any government bodies.

RATING SENSITIVITIES
Samruk-Kazyna:
Positive rating action could result from an upgrade of Kazakhstan. Conversely, negative rating action on Kazakhstan or a weakening of the fund's links with the state would lead to a downgrade.

Baiterek:
Baiterek's ratings mirror those of the sovereign. Positive rating action would result from an upgrade of Kazakhstan. Conversely, negative rating action on Kazakhstan or weakening of Baiterek's links with the state, as evidenced, by issuance of material unguaranteed market debt, would lead to a downgrade.

KazAgro:
A downgrade would follow the materialisation of diminishing propensity for support from the state as measured by a sustainable shift in the long-term funding structure in favour of market instruments, leading to widening of the rating differential with the sovereign to two notches. Negative rating action on the Republic of Kazakhstan would also be reflected by KazAgro's rating.

KMC:
An upgrade may result from an upgrade of the sovereign ratings provided that KMC's links to the government are unchanged, or from tighter integration with the sovereign, including an explicit government guarantee.

Changes to the legal status leading to a dilution of control or weakening of support by the sovereign could lead Fitch to widen the notching from the sovereign to two notches, resulting in a downgrade. Negative rating action on the Republic of Kazakhstan would also be reflected by KMC's ratings.

The rating actions are as follows:

JSC Sovereign Wealth Fund Samruk-Kazyna
- Long-term foreign currency IDR: downgraded to 'BBB' from 'BBB+'; Outlook Stable
- Long-term local currency IDR: downgraded to 'BBB' from 'A-'; Outlook Stable
- Short-term foreign currency IDR: affirmed at 'F2'
- National Long Term Rating: affirmed at 'AAA(kaz)'; Outlook Stable
- Senior unsecured domestic bonds: downgraded to 'BBB' from 'A-', affirmed at 'AAA(kaz)'

National Management Holding Baiterek
- Long-term foreign currency IDR: downgraded to 'BBB' from 'BBB+'; Outlook Stable
- Long-term local currency IDR: downgraded to 'BBB' from 'A-'; Outlook Stable
- Short-term foreign currency IDR: affirmed at 'F2'
- National Long Term Rating: affirmed at 'AAA(kaz)'; Outlook Stable
- Senior unsecured domestic bonds: downgraded to 'BBB' from 'A-', affirmed at 'AAA(kaz)'

JSC KazAgro National management holding
- Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Negative
- Long-term local currency IDR: downgraded to 'BBB-' from 'BBB+'; Outlook Negative
- Short-term foreign currency IDR: affirmed at 'F3'
- Senior unsecured eurobonds: downgraded to 'BBB-' from 'BBB'
- Senior unsecured domestic bonds: downgraded to 'BBB-' from 'BBB+'

Kazakhstan Mortgage Company
- Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable
- Long-term local currency IDR: downgraded to 'BBB-' from 'BBB+'; Outlook Stable
- Short-term foreign currency IDR: affirmed at 'F3'
- Senior unsecured domestic bonds: downgraded to 'BBB-' from 'BBB+'
- Senior secured domestic bonds: downgraded to 'BBB-' from 'BBB+'
- Subordinated domestic bonds: downgraded to 'BB+' from 'BBB'