S&P downgrades credit ratings of National managing holding "KazAgro" to "BB+/B"; outlook "Negative"

/Standard & Poor's, Moscow, February 24, 16, heading by KASE/ – Standard & Poor's Ratings Services said today that it lowered its long- and short-term issuer credit ratings on KazAgro National Management Holding (KazAgro Holding) to 'BB+/B' from 'BBB-/A-3'. The outlook on the long-term ratings is negative. We also lowered the Kazakhstan national scale ratings on KazAgro to 'kzAA-' from 'kzAA'. The rating action reflects the downgrade of Kazakhstan on Feb. 17 (see "Kazakhstan Downgraded To 'BBB-/A-3' On Weaker Growth Outlook And Falling Current Account Receipts; Outlook Negative," published on RatingsDirect). We rate KazAgro Holding, the nonoperating holding company of the KazAgro group, under our criteria "Group Rating Methodology" and "Rating Government-Related Entities: Methodology And Assumptions". We assess the likelihood of extraordinary government support to the consolidated KazAgro group as almost certain. This is based on our view of the group's: - Integral link with the government. The state owns 100% of the holding company, which in turn fully owns its subsidiaries. The holding company has a special status as a financial agency, which confers certain benefits including the ability to borrow from the state without collateral. Previously, the government has provided support to the group. For instance, we understand that the government recently extended the maturity of the loan from the National Fund to KazAgro Holding to 2041 from 2023. Several ministers and the first deputy prime minister are on the holding company's board of directors; - Critical public policy role as the government's primary vehicle for providing financial support to and developing the agricultural sector and rural areas. KazAgro's subsidiaries support the agricultural sector through leasing, providing short- and long-term lending, and extending micro-financing. We view the group as key to implementing several government strategies, including AgroBusiness 2020. According to management's estimates, the group's current share in total lending to the agricultural sector is close to 50%. Consequently, the group credit profile (GCP) is now 'bbb-', equalized with the sovereign credit rating on Kazakhstan. The GCP reflects the creditworthiness of the consolidated operations group, taking into account our view of the likelihood of extraordinary government support. We believe, however, that while the holding company's creditworthiness is closely tied to that of the consolidated group, it is marginally weaker than the group's. Correspondingly, our ratings on KazAgro Holding are one notch lower than the GCP. This is because we consider KazAgro to be a non-operating holding company. Consequently, the government's incentives to provide extraordinary support to the parent company in a stress scenario could potentially be weaker as compared to some of the Holding's operating subsidiaries. Specifically, we believe that the default of some of KazAgro Holding's subsidiaries will be more detrimental for the government than the default of the parent company because it is predominantly the subsidiaries that are directly involved in implementing a number of important government programs. While the role of the holding company for the government is very important, it is less so than that of some operating subsidiaries. KazAgro Holding's very important role reflects its function of improving the operational and financial performance of its subsidiaries, as well as enhancing the efficiency of financial resources management and increasing transparency. The negative outlook mirrors that on the sovereign. We would likely revise the outlook on KazAgro if we took a similar action on the sovereign. Other things equal, a one-notch downgrade of our long-term ratings on Kazakhstan could lead to a two-notch downgrade of our ratings on KazAgro Holding. We could also lower the ratings over the next 12 months if we saw signs of waning government support to the group. In addition, we could lower the ratings if we perceived the role of KazAgro Holding for the government as reducing in contrast to the role of the overall group. We could consider an upgrade if we perceived that the holding company's role for the government and its relative importance within the group had increased. Primary Credit Analyst: Maxim Rybnikov, London (44) 20-7176 7125; maxim.rybnikov@standardandpoors.com Secondary Contact: Annette Ess, CFA, Frankfurt (49) 69-33-999-157; annette.ess@standardandpoors.com [2016-02-26]