OREANDA-NEWS. Fitch Ratings has affirmed KazAgro National Managing Holding JSC's (KazAgro) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' and its Long-term local currency IDR at 'BBB+'. The agency has also affirmed KazAgro's Short-term foreign currency IDR at 'F3'. The Outlooks for the Long-term ratings are Stable.

Fitch has also affirmed KazAgro's outstanding senior unsecured eurobonds at Long-term foreign currency rating 'BBB' and domestic bonds at Long-term local currency rating 'BBB+'.

KEY RATING DRIVERS

The affirmation reflects KazAgro's 100% state ownership, its strategic importance as a conduit of state policy to support the national agricultural sector, and hence a high probability of timely potential support from the sovereign, in case of need. Fitch used its public sector entities methodology and applied a top-down approach in its analysis of KazAgro and applied a one notch rating differential from Kazakhstan's ratings (BBB+/A-/Stable).

As Fitch previously noted, a reduction in state-originated funding to less than 50% of KazAgro's total funding would lead to a widening of the rating differential between the company and the sovereign to two notches. According to interim financial information market funding as a share of KazAgro group's funding structure was 46% in 1Q15, down from 49% in May 2014.

Fitch expects KazAgro to maintain state-originated funding at a majority share of more than 50% in 2015-2016. To this end, KazAgro is likely to issue up to KZT80bn domestic bonds (of which KZT20bn were issued in February 2015) this year.

Additionally, KazAgro could be supported by capital injections from the state. In May 2014 the government injected KZT20bn into KazAgro's equity to cover the company's loss stemming from a depreciation of tenge in February 2014.

KazAgro group's debt stock in 2014 comprised 38% bonds and loans denominated in euro and US dollars, exposing the company to forex risks in light of increased pressure on tenge. In its base case Fitch assumes that forex risk is likely to be partially mitigated by gradual replacement of KazAgro's maturing external debt with domestically originated debt. In 1Q15 KazaAgro repaid foreign currency loans totalling USD200m.

Fitch assesses KazAgro group's liquidity position as satisfactory with KZT90bn cash by end-2014, or 15% of outstanding debt. For 2015 KazAgro plans to formalise its sinking fund provision, which will gradually accumulate forex reserves for future repayments.

In Fitch's view KazaAgro's mandate as a government agent in implementing the state's agricultural policy will remain intact in the medium term. Agriculture remains strategically important to the state; it contributed 4.3% to the nation's gross domestic product (GDP) in 2014 and employed about 21% of the country's labour force.

RATING SENSITIVITIES

Positive rating action may result from evidence of more formalised state support, including an explicit government guarantee on KazAgro's debt. An upgrade of the Republic of Kazakhstan could also trigger a positive rating action.

Negative rating action could be triggered if market debt becomes the major funding source for KazAgro on a sustained basis, signalling a long-term shift in the company's financing approach. A negative rating action on the Republic of Kazakhstan would also be reflected in KazAgro's ratings.