Standard & Poor’s Ratings Services said that it had affirmed its ‘BB’ long-term and ‘B’ short-term issuer credit ratings and the ‘kzA+’ Kazakhstan national scale rating on Kazakh Agrarian Credit Corp. (KACC), a state-owned provider of subsidized credit to agricultural and non-agricultural businesses in rural areas throughout the Republic of Kazakhstan (foreign and local currency BBB+/Stable/A-2; Kazakhstan national scale ‘kzAAA’). The outlook is stable.
The ratings on KACC reflect a combination of its stand-alone credit profile, which we assess at ‘b’, and our opinion of a “high” likelihood of timely and sufficient extraordinary support the company may receive from the Kazakh government in the event of financial distress.
The ‘b’ stand-alone credit profile is constrained by KACC’s high sector and single-name concentrations in the challenging operating environment that is Kazakhstan’s agricultural sector. Moreover, the relatively weak quality of its lending decisions in the past results in current weak profitability.
It is buoyed in our view by significant ongoing state support to KACC, resulting in high and growing capitalization and the availability of cheap financing in the form of budget and national fund loans. More than 50% of loans are covered by equity. Although the government provides capital injections to finance specific lending programs in a given year, we believe KACC may use capital provided in previous years to offset losses and repay debt, while current-year injections might be redistributed if necessary.
The stable outlook reflects our expectations of continued strong ongoing support to KACC in 2012-2014, resulting in strong capitalization levels and adequate liquidity. It also reflects our expectation that our assessment of a “high” likelihood of timely and sufficient extraordinary government support will not change.
A stronger probability of extraordinary support, or positive momentum in the stand-alone credit profile, with improving profitability, might lead to positive rating actions on KACC.
Negative rating actions on the sovereign, or signs of a lower probability of extraordinary support, might result in negative rating actions on KACC. Deterioration of the stand-alone credit profile, with weakening liquidity and growing problem assets in KACC’s portfolio, might also result in negative rating actions.