(The following statement was released by the rating agency)
— Our ratings on Samruk-Kazyna, which is 100% owned by the Republic of Kazakhstan, are equalized to the ratings of the sovereign.
— This reflects our view of the “almost certain” likelihood of timely and sufficient extraordinary support to Samruk-Kazyna from the government of Kazakhstan.
— We are therefore raising our long-term and short-term foreign currency ratings on Samruk-Kazyna to ‘BBB+’ and ‘A-2’, in line with the raising of the sovereign foreign currency ratings; local currency ratings are affirmed.
— The stable outlook mirrors our outlook on the long-term ratings on the Republic of Kazakhstan.
Standard & Poor’s Ratings Services said today that it raised its long- and short-term foreign currency counterparty credit ratings on Samruk-Kazyna to ‘BBB+/A-2’, in line with the raising of the sovereign foreign currency ratings. At the same time, we affirmed the long- and short-term local currency counterparty credit ratings at ‘BBB+/A-2’, and the Kazakhstan national scale rating at ‘kzAAA’. The outlook is stable.
The ratings on Samruk-Kazyna are equalized with those on the Republic of Kazakhstan (foreign currency BBB+/Stable/A-2; local currency BBB+/Stable/A-2; Kazakhstan national scale kzAAA). This reflects our view of an “almost certain” likelihood of the government providing timely extraordinary support sufficient to service all debt, should the need arise in any severe downside scenario. Our assessment of the likelihood of extraordinary support is based on our view of Samruk-Kazyna’s critical role as the main operator for the government’s off-budget financial and economic activities and the company’s “integral” link with the government.
Samruk-Kazyna is a 100% state-owned holding company that consolidates over 400 of Kazakhstan’s state-owned enterprises, including vertically integrated oil company NC KazMunaiGas , railway operator Kazazkhstan Temir Zholy, electricity company KEGOC, telecom operator Kazakhtelecom , mining company Kazatomprom , government-owned investment funds, stakes in several key local banks, and a number of other entities in various sectors. These broad holdings underpin our view of the entity’s strategic importance. Samruk-Kazyna’s oversight role empowers it to monitor and approve large borrowings and significant transactions for every subsidiary on behalf of the government. The investments and financing decisions of the holding company reflect government policy and the government’s direct input via Samruk-Kazyna’s board of directors, which the prime minister chairs.
Standard & Poor’s estimates Samruk-Kazyna’s stand-alone credit profile (SACP) at ‘b+’. The key constraint on the ratings is the company’s high exposure to the relatively weak local banks, which themselves receive assistance from Samruk-Kazyna. In our view, the situation in the Kazakh banking sector is improving, and the liabilities of the banks that defaulted have been appropriately restructured. Nevertheless, a high 42% of Samruk-Kazyna’s asset portfolio is in the form of equity stakes, loans to banks, and deposits, and these also form a significant share of the fund’s recurring income.
The stand-alone credit profiles of Samruk-Kazyna’s major subsidiaries are relatively weak. At the holding level, recurring income consists of dividends and interest. A significant part of the holding entity’s income is not paid in cash. For example, a considerable proportion of the interest on Samruk-Kazyna’s deposits with local banks is accumulated and used to repay Samruk-Kazyna’s liabilities with those banks. Similarly, the dividend from Samruk-Kazyna’s largest investment, KMG, is offset against a loan KMG extended to the holding company in mid-2010.
Samruk-Kazyna’s SACP reflects our expectation that the company will continue to receive regular government support in the form of long-term loans and capital injections. Most of the holding entity’s debt is due to the government or to its subsidiaries. By contrast, the subsidiaries’ debt is mostly to third parties, but these creditors have no recourse to Samruk-Kazyna.
The stable outlook reflects our outlook on ratings on the Republic of Kazakhstan and our expectation that our assessments of Samruk-Kazyna’s critical role in the economy and integral link with the government are unlikely to change.
We could raise or lower the ratings on Samruk-Kazyna if the ratings on the Republic of Kazakhstan were raised or lowered. Any signs of weakening sovereign support, either because of deviation from Samruk-Kazyna’s policy role or because of a weakening link with the government, may change our assessment of Samruk-Kazyna’s role, and of its link with the government, and this would result in downward pressure on the rating.
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
— Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
— 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
— Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009
— 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
— Rating Methodology For European Investment Holding And Operating Holding Companies, May 28, 2004