OREANDA-NEWS. Fitch Ratings has placed KazAgroFinance's (KAF) Long-term Issuer Default Ratings (IDRs) of 'BBB-' on Rating Watch Negative (RWN).

KEY RATING DRIVERS
The RWN on KAF mirrors that on its parent KazAgro National Managing Holding JSC (KazAgro, BBB/RWN, see "Fitch Places Kazakhstan's KazAgro on Rating Watch Negative" dated 8 April 2014 at www.fitchratings.com), which in turn reflects Fitch's concerns about KazAgro's intention to significantly increase wholesale borrowings, as this may reduce the government's support propensity for KazAgro and consequently KAF.

KAF's IDRs, National Long-term and Support Ratings factor in the likelihood of support the bank may receive, if needed, from Kazakh authorities (through KazAgro), given the track record of capital injections, the low cost of potential support, KAF's status as a material subsidiary of KazAgro and the significant risks of reputational and market access damage in case of KAF's default.

At the same time, the current two-notch differential between KAF's foreign currency IDR and that of the Kazakh sovereign reflects (i) KAF's less prominent policy role as a development institution and lesser importance for the country's economy and financial system relative to other government-owned institutions in Kazakhstan; and (ii) the company's indirect government ownership, which may in some scenarios impact the timeliness of support. KAF's vulnerable asset quality and growth plans also mean that its leverage may over time increase significantly from the current low level.

For more details on KAFs rating drivers see "Fitch Affirms Development Bank of Kazakhstan at 'BBB'; Upgrades KazAgroFinance to 'BBB-'" dated 19 November 2013.

RATING SENSITIVITIES
Fitch expects to resolve the RWN on KAF within six months once the parent's RWN is resolved. In resolving the RWN on KAF, Fitch will consider the rating action on the parent, as well as the role of KAF in the group and the implications of the increased market borrowings of KazAgro for the government's support propensity towards KAF.

Fitch may downgrade KAF's ratings if the parent's ratings are downgraded and the agency believes that support propensity in respect to KAF has weakened.
The affirmation of KazAgro's ratings and/or evidence that support for KAF has not materially deteriorated could result in affirmation of KAF's ratings.