Fitch Places Kazakhstan's KazAgro on Rating Watch Negative
OREANDA-NEWS. Fitch Ratings has placed KazAgro National Managing Holding JSC's (KazAgro) Long-term foreign currency Issuer Default Rating (IDR) of 'BBB' and Long-term local currency IDR of 'BBB+' on Rating Watch Negative (RWN). The agency has affirmed KazAgro's Short-term foreign currency IDR at 'F3'.
Fitch has also placed on RWN the 'BBB' Long-term foreign currency rating of KazAgro's senior unsecured USD1bn Eurobond issue due 2023 (ISIN XS0934609016).
The RWN reflects Fitch's view that KazAgro may increase the proportion of funding it obtains from the markets. In April 2013, Fitch signalled that if more than 50% of funding was raised from the market, KazAgro's rating would be downgraded. Fitch considers that KazAgro may raise supplementary foreign currency debt in 2014 in addition to the existing USD1bn Eurobonds issued in May 2013.
KEY RATING DRIVERS
Fitch considers that the additional foreign currency debt could result in KazAgro's market funding consistently exceeding state-originated funding. A material increase in market borrowing leading to a structural minority of government funding could suggest weakening state support. Depreciation of the Kazahstan tenge (KZT) by about 20% in February 2014 has also had an effect on the funding structure.
Fitch rates KazAgro based on a top-down approach under its criteria, demonstrated by continuous state support in the form of equity injections, subsidised budget loans and other state originated funding. Fitch expects that KazAgro will continue to benefit from regular equity injections and access to subsidised government loans in the future.
KazAgro is a joint-stock company fully owned by the national government and acts as the government's agent implementing a state agriculture policy. The agricultural sector is of high importance for the nation in the terms of grain exports, production, employment and social issues.
At end-March 2014, KazAgro's foreign currency debt was USD1.2bn, compared with USD645m placed in foreign currency bank accounts and deposits. This foreign currency liquidity served as a partial hedge against the depreciation of the tenge against the US dollar in early February 2014. KazAgro has strong equity and enjoys from continuous support from the government.
The agency expects to resolve the RWN when it has received audited end-2013 accounts and has had an opportunity to discuss funding plans with management. It consequently expects to resolve the RWN within six months.
If over 50% of KazAgro's total funding was consistently raised from the market it would lead to a downgrade. Fitch will consider this 50% figure in the context of a longer-term approach to funding rather than solely at a particular point in time.
The ratings are on RWN. As a result, Fitch's sensitivities do not currently anticipate developments with a material likelihood, individually or collectively, leading to an upgrade. However the ratings could be affirmed if KazAgro continues to benefit from state support maintaining state-originated funding at above 50% of the total.