9 July 2013
Standard & Poor's Ratings Services affirmed its long- and short-term local and foreign currency credit ratings on Kazakhstan-based government-related entity Samruk-Kazyna (SK) at 'BBB+/A-2'. The outlook is stable, Standard & Poor's reported on Tuesday.
The agency also affirmed the Kazakhstan national scale rating at 'kzAAA'.
"This reflects our view of an "almost certain" likelihood of the government providing timely extraordinary support sufficient to service all debt, if needed," S&P said.
According to the agency, SK plays a "critical" role for the government of Kazakhstan. SK is the government's main vehicle for implementing the strategic industrialization agenda and long-term economic sustainability and diversification agenda. It controls essentially all strategic assets in Kazakhstan. Moreover SK is "integrally" linked with the government, which reflects the view that the 100 percent government-owned SK essentially acts on behalf of the government. The government plays a decisive role in SK's operations. That is why the likelihood of extraordinary support is "almost certain".
"We believe that a default by SK would cause the government significant reputational damage," S&P said.
SK is a 100 percent state-owned holding company. It consolidates almost all of Kazakhstan's state-owned assets, and manages these assets on behalf of the government. Among the many assets it manages are national oil company JSC NC KazMunaiGas, railway operator Kazakhstan Temir Zholy, electricity company KEGOC, telecom operator Kazakhtelecom, and mining company Kazatomprom.
In the view of S&P, SK performs an important public policy role, which is formally defined by law and plays a central role in meeting the government's key economic, political, and social objectives.
According to S&P, SK acts essentially on behalf of the government. It is highly integrated with the government, and the government plays a decisive role in its operations.
"We assess SK's stand-alone business profile (SACP) as 'b+', based on its "fair" business risk profile, "highly leveraged" financial risk profile, and "adequate" liquidity, as our criteria define these terms," S&P said.
The key factors constraining SK's stand-alone business risk profile include the only-fair credit quality of its major investments such as KazMunayGas, KTZ, and KEGOC, and its significant dependence on the oil and gas segment, which generates most of the group's profits.
These risks are mitigated by SK's control over essentially all strategic industrial assets in Kazakhstan--a portfolio that is as diversified as it can be. An important factor in the assessment of the financial risk profile is agency's expectation of these assets' profitable operations and ongoing support from the government via favorable regulations and access to commercially attractive assets. The key factor constraining the assessment of financial risk is the lack of transparency and predictability regarding SK's financial policy, notably future investments, disposals, or asset transfers to sister GREs.
SK's liquidity was assessed as "adequate," with sources of liquidity to uses of liquidity above 1.2x.
S&P could raise or lower the ratings on SK if we raised or lowered the sovereign ratings. Any signs of weakening sovereign support, either because of a deviation from SK's policy role or the government changing how it manages its assets, or because of a weakening link with the government, may change the assessment of SK's role in and link with the government. This would lead to downward pressure on the ratings.