(The following statement was released by the rating agency)
— We equalize our ratings on the 100% state-owned Development Bank of Kazakhstan (DBK) with the ratings on the sovereign, the Republic of Kazakhstan.
— This reflects our view of the “almost certain” likelihood of timely and sufficient extraordinary support to DBK from the government of Kazakhstan.
— We are therefore raising our long- and short-term foreign currency ratings on DBK to ‘BBB+’ and ‘A-2’ respectively, following the upgrade of the sovereign foreign currency rating; local currency ratings are affirmed.
— The stable outlook on DBK mirrors our outlook on the long-term ratings on the Republic of Kazakhstan.
Standard & Poor’s Ratings Services said today that it raised its foreign currency counterparty credit ratings on state-owned Development Bank of Kazakhstan to ‘BBB+/A-2’ from ‘BBB/A-3’, following the raising of the sovereign foreign currency ratings. At the same time, we affirmed the local currency counterparty credit ratings of ‘BBB+/A-2’. The outlook is stable.
The upgrade of the Development Bank of Kazakhstan (DBK) mirrors the upgrade of its ultimate owner, the Republic of Kazakhstan (foreign currency, BBB+/Stable/A-2; local currency, BBB+/Stable/A-2; Kazakhstan national scale, kzAAA). The government’s shares in DBK are managed by Samruk-Kazyna (foreign currency BBB+/Stable/A-2; local currency BBB+/Stable/A-2; Kazakhstan national scale kzAAA), the government’s holding company for over 400 state-owned and government-supported entities.
We equalize the ratings on the Development Bank of Kazakhstan with the ratings on the Republic of Kazakhstan based on our assessment of an “almost certain” likelihood of the government providing timely and 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 the bank’s critical public policy role and its integral link to the government. These assessments reflect the state’s 100% ownership and DBK’s position as the primary vehicle for providing long-term credit to the nonextractive sectors of the Kazakh economy, the expansion of which is one of the government’s main strategic development targets. DBK is to play a key role in the implementation of the government’s medium-term strategic development plan. In recent years, it has offset dwindling project financing from nonofficial sources. In view of the substantial development needs in Kazakhstan’s infrastructure and manufacturing sectors, we believe DBK will continue to play a vital role.
Although the sovereign does not guarantee DBK’s obligations, the bank appears to be well capitalized as a result of continuous government injections. In September 2009, the government increased DBK’s capital by 122%, bringing it to 31.7% of total reported assets by year-end 2009. The increase in DBK’s capital was a result of both the government’s program for industrial and innovation development and its anticrisis program, launched in late 2008. In addition, DBK obtains other support from the government through budget loans, as well as loans and guarantees (including subordinated loans) on favorable terms from Samruk-Kazyna.
According to presidential decree in 2011, the oversight of DBK will be shifted to the Ministry of Industry and New Technology (MINT) from Samruk-Kazyna. The transfer is in accordance with the government’s medium-term strategic development plan, for which MINT is responsible. That said, Samruk-Kazyna will remain the sole owner of DBK.
The government continues to be closely involved in defining DBK’s strategy through both Samruk-Kazyna and MINT. The government has four representatives on the board of directors of DBK, including the deputy prime minister who chairs the board; there also are four independent directors on the board.
The stable outlook reflects our outlook on the Republic of Kazakhstan. It also reflects our view that our assessments of DBK’s critical role in the economy and its integral link with the government are unlikely to change. DBK would likely be upgraded or downgraded if the ratings on the sovereign are raised or lowered. We expect strong ongoing government support for DBK by way of a long-term commitment to increase the bank’s capital. We do not anticipate any changes in policy and the regulatory framework that would weaken the bank’s key role in the government’s development plans. However, a deviation from DBK’s role in government policy, or signs of weakening government support, would result in downward pressure on the ratings.
— Republic of Kazakhstan FC Ratings Raised To ‘BBB+/A-2’; LC Affirmed; Outlook Stable, Nov. 7, 2011
— Rating Government-Related Entities: Methodology And Assumptions, Dec.09, 2010