Fitch Affirms Kazakhstan's Sovereign Wealth Fund Samruk-Kazyna at 'BBB+'; Outlook Stable
Fitch has also affirmed SK's senior unsecured domestic bonds at Long-term local currency 'A-' and at National Long-term 'AAA(kaz)'.
The affirmation of the IDRs and senior debt ratings reflects SK's unchanged strategic importance, and its special legal status as a sovereign wealth fund and the state's key asset management company, 100% owned by Kazakhstan (BBB+/A-/Stable).
KEY RATING DRIVERS
SK's ratings are equalised with those of Kazakhstan, which reflects SK's status as an extension of the government in managing its strategic assets, tight control by the government and 100% state ownership. They also reflect the fund's strong operational and financial integration with the sovereign. Fitch uses its public-sector entities rating criteria in its analysis of SK and views it as being credit-linked to the sovereign.
SK was endowed by the Kazakhstani government with stakes in key national companies to improve the sovereign wealth by increasing the value of the assets under its management. SK's operations are based on the special law on sovereign wealth fund, highlighting the fund's special status.
The fund manages stakes in the country's strategic companies in prime sectors of the local economy, i.e. oil and gas, electricity, mining, transportation and other sectors. SK's portfolio covers 31 second-tier companies, which in turn consisted of 593 entities at end-2014.
Fitch views the government's control and oversight over SK's operations as strong. SK's board comprises key national Ministers as well as independent directors and is chaired by the republic's Prime Minister. The state mandates SK's key policies on debt, dividends and investments, appoints its audit committee and external auditor, monitors and controls the use of government funds allocated to the entity.
In Fitch's view, SK is highly integrated with the national budgetary system. The government uses SK as a financing vehicle to channel funding to shareholding companies in its portfolio, and as a guarantor in viable economic projects.
To fulfill its quasi-fiscal role SK has received subsidised government loans and equity injections, as well as subsidised loans from the National Bank and the National Fund since inception in 2008. These funds were mostly passed through to subsidiaries to aid more efficient asset management of SK's portfolio.
Fitch rates the fund as a standalone entity and does not factor in group obligations. SK's debt is not referenced in the state budget. However, its debt obligations are viewed by the government as moral obligation of the state and considered as quasi-sovereign liabilities.
SK's standalone debt decreased marginally to 35% of equity and reserves in 2014 from 39% in 2013. SK also serves as a guarantor for its subsidiaries and the amount of guarantees, as reflected in its financial statements, rose to KZT38.8bn in 2014 from KZT37.1bn in 2013 (2009: KZT22bn). The group's consolidated net debt rose to 4.5x EBITDA at end-2014 from 3.2x a year earlier.
Fitch notes that the recent depreciation of tenge in August 2015 could put the group's consolidated financials under pressure in 2015-2016, due to increased forex risk. To mitigate this our baseline assumes extraordinary support from the sovereign would be forthcoming for SK.
SK divested some of its stakes in distressed financial institutions in 2015, although its portfolio remains large. Following the divestment and after certain development institutions were transferred to Baiterek (BBB+/F2/Stable) in 2013 SK should become more focused on profit-generating subsidiaries.
A positive rating action could result from an upgrade of Kazakhstan. Conversely, a negative rating action on Kazakhstan or a weakening of the fund's links with the state would lead to a downgrade.