OREANDA-NEWS. August 24, 2011. Fitch Ratings has assigned Kazakhstan-based grain and oilseed producer JSC Holding KazExportAstyk (KazExportAstyk or KEA) Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'B' and a National Long-term rating of BB(kaz)'. The agency has simultaneously placed the ratings on Rating Watch Negative (RWN) reflecting the company's need to procure longer-dated debt, which a successful issue of a proposed bond is expected to address, reported the press-centre of KASE.

The resolution of the RWN is dependent on a successful bond offering which would alleviate any liquidity concerns. The agency expects to remove the RWN and assign a Stable Outlook upon evidence of the company's receipt of minimum expected proceeds of KZT20bn.

The IDRs reflect KEA's moderate to high business risk due to the cyclicality and seasonality of the agricultural commodities sector, its reliance on one geographical area and lack of any large scale vertical integration or diversification beyond crop rotation and ancillary agricultural services. However, this is mitigated by the prospects of long-term growth for the agricultural sector in Kazakhstan and KEA's high crop yields relative to average levels in Kazakhstan.

The rating is underpinned by KEA's manageable market price exposure derived from its contractual relationship with the group's partner agrofirms and its own trading strategies, as well as adequate storage capacity in relation to market price exposure from its own crop production.

The group's financial risk is currently considered weak for the rating. Fitch remains concerned about KEA's high level of short-term funding and near-term maturities. However, the agency understands that the company will attempt to term out these debt maturities with longer-dated debt instruments by the end of 2011, including a planned KZT40bn local currency unsecured bond that is expected to be issued in the coming weeks. A successful debt refinancing will strengthen the group's financial flexibility, particularly when combined with other short-term liquidity measures, including its ability to liquidate inventories, and KEA's potentially strong free cash flow generation.

Fitch expects free cash flow to remain positive due to falling working capital arising from maturing relationships with partner agrofirms. KEA exhibits high opening leverage (gross lease-adjusted debt to EBITDAR of 4.3x or 3.5x net of cash) and weak interest cover (operating EBITDAR/net interest expense plus rents) of 2.3x for the rating level.

KEA is a privately owned Kazakh agricultural business. It produces and trades grains and oilseeds. In addition it distributes ancillary agricultural supplies and equipment. KEA's FY10 reported revenues and EBITDA was KZT45bn (USD310m equivalent) and KZT19.2bn (USD131m) respectively. Excluding changes in the fair values of agricultural and biological assets, revenues and EBITDA were KZT45bn (USD310m) and KZT16.5bn (USD114m), respectively.