Baku, Azerbaijan, May 24
By Nargiz Sadikhova - Trend:
Fitch Ratings reviewed the status of Agrarian Credit Corporation on the agriculture market of Kazakhstan, Trend reports with reference to Fitch press office.
Fitch Ratings has affirmed Kazakhstan's Agrarian Credit Corporation Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at 'BB+' and a National Long-Term Rating at 'AA(kaz)'.
The Outlooks are Stable. Fitch has also affirmed Agrarian Credit Corporation's Short-Term Foreign-Currency IDR at 'B' and senior unsecured debt ratings at 'BB+'.
Fitch views Agrarian Credit Corporation as an entity credit-linked to the Republic of Kazakhstan (BBB/Stable/F2), which is supported by indirect state ownership and control through JSC KazAgro National Managing Holding (KazAgro; BBB/Stable) and regular state financial support.
Status, Ownership and Control Assessed as Strong.
Agrarian Credit Corporation is a government agent authorised to implement state policy in the agricultural sector, mainly through providing affordable lending to agricultural entities. It is one of the seven subsidiaries of KazAgro, Agrarian Credit Corporation's sole shareholder.
The state exercises strict control over Agrarian Credit Corporation's activities through KazAgro, which sets a framework for the debt and dividend policy and appoints the company's board of directors.
Fitch does not expect any dilution in ownership or control in the medium term.
Support Record and Expectations Assessed as Very Strong.
Fitch expects that Agrarian Credit Corporation will continue to enjoy state support with the proportion of state-originated funding above 90 percent in 2019-2021
Since 2017, the company has annually received 60 billion tenge short-term loans directly from the state budget. The funds are allocated within the framework of the "State Programme of Agro-Industrial Development for 2017-2021" and are used to finance the liquidity gaps of agribusinesses. The company will continue to receive these funds annually in 2019-2021 as they are already approved in the law on the state budget.
Socio-Political Implications of Default Assessed as Strong.
Agrarian Credit Corporation's main task is to provide affordable funding - both directly and indirectly - to agricultural entities. The company itself is dependent on regular access to funding, which means that it would be severely affected by a default. Agrarian Credit Corporation would likely to discontinue its operations financing agro-business entities in the event of default, endangering the provision of affordable lending to agricultural entities, particularly for small businesses in remote rural areas.
Support of agriculture has historically been one of the strategic priorities for the state because of the sector's sizeable export capacity and its social importance. Agrarian Credit Corporation plays an important role in the sector and it provided 52% loans issued to agricultural entities in2018.
Financial Implications of Default Assessed as Moderate.
Fitch views a default of Agrarian Credit Corporation on its debt obligations as potentially damaging to the reputation of Kazakhstan, but not irreparably so. Its entire debt stock is in local currency, mostly from the parent and the state. At the end of 2018, the proportion of market debt accounted for only four percent of Agrarian Credit Corporation's total debt, represented by 9.5 billion tenge of loans from local banks. This significantly limits default risk on market debt. In Fitch's view, the proportion of market debt exposure should remain modest in the medium term, so no change in assessment is expected.
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