OREANDA-NEWS. On December 23, 2008  Fitch Ratings has affirmed Kazakhstan-based JSC Astana Finance's (AF) ratings, including its Long-term Issuer Default rating (IDR) at 'BB' with Negative Outlook, and its Individual rating at 'D/E'. The agency has also today assigned ratings to AF's leasing subsidiary JSC Astana Finance Leasing Company (AFL). A full list of ratings follows at the end of this announcement, reported the press-centre of KASE.

AF's IDRs and its Support rating reflect what Fitch considers is a moderate probability that support would be made available to AF from its 25.5% beneficial shareholder, state-owned Fund for National Welfare 'Samruk-Kazyna' or potentially the Kazakhstani sovereign (rated Long-term IDR BBB-(BBB minus)/Outlook Negative), in the event of need.

Samruk-Kazyna was formed in H208 after the government decided to merge the state-owned Fund for Sustainable Development 'Kazyna' with Kazakhstan Holding for Management of State Assets 'Samruk'. Kazyna has provided a letter of comfort to AF's noteholders, lenders and other interested parties which, in Fitch's opinion, creates a strong moral obligation on the part of Samruk-Kazyna and/or the Kazakhstani sovereign to support AF, if needed. The Negative Outlooks on Foreign and Local currency IDRs are aligned with those on Kazakhstan's sovereign ratings.

AF's Individual Rating reflects risks associated with AF's deteriorating asset quality, substantial loan and funding concentrations on both sides of the balance sheet and high, albeit much reduced, leverage. It also recognizes Fitch's concerns regarding AF's significant dependence on foreign wholesale funding and the challenging operating environment. Earnings are likely to weaken further as asset quality weakens in a deteriorating economic climate in Kazakhstan. Furthermore, mark-to-market losses on securities in H208 could make the group loss-making, and the agency notes that the group is finding it increasingly hard to find willing counterparties to hedge FX risks. On balance, therefore, there are more downside risks to AF's Individual Rating than there is upside potential.

Fitch believes AF would have a very high propensity to provide timely financial support to AFL should it be needed because of AFL's shared name, full ownership, strategic importance and cross-default clauses in AF's own Eurobond documentation. Intra-group receivables/payables are also very high, making it hard to differentiate potential default risk with AF. Fitch believes Samruk-Kazyna would support AF if it needed resources to support AFL. AFL's ratings have, therefore, been aligned with those of AF.

Following discussions with AF, Fitch understands that the change of control clauses are not triggered by Samruk-Kazyna being owner of the 25.5% stake in AF and that Samruk-Kazyna will shortly issue a new comfort letter in respect of AF's obligations that is similar to (and will replace) the existing, strongly worded letter from Kazyna. If not, the ratings of AF and AFL could be vulnerable to downgrades of more than one notch.

AF's term funding is sourced mainly from the local and international debt capital markets and banks, but is predominantly long-term in nature. Reliance on wholesale sources is a weakness, given that AF's access to international funds at an acceptable price has been severely affected by the global credit crunch. At end-November 2008, Fitch has been informed that AF had around KZT40bn (USD330m) of freely available cash and securities eligible for repo. Debt repayments were/are KZT6bn in December, KZT5bn in January and KZT15bn in February, primarily AF's debut USD125m Eurobond. Thereafter, debt repayments due over the rest of 2009 are only around KZT4bn. New lending is presently extremely limited because of AF's severely restricted access to new funding outside ECA-backed loans and local borrowings. Liquidity from loan repayments is being partially used to buy back debt, Fitch understands.

AF was created in 1997 by the Municipality of Astana to facilitate development finance (loans, leasing and equity) for Astana, the capital of Kazakhstan, and for the surrounding Akmola region. It has since diversified geographically and into certain aspects of investment banking.