Fitch Ratings-Moscow/London-04 May 2017: Fitch Ratings has affirmed Kazakhstan's JSC National Management Holding Baiterek's (Baiterek) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB', National Long-Term rating at 'AAA(kaz)' and Short-Term Foreign-Currency IDR at 'F2'. The Outlooks on the Long-Term ratings are Stable. Fitch has also affirmed Baiterek's senior unsecured domestic debt at 'BBB'/'AAA(kaz)'.
Baiterek's ratings are equalised with those of Republic of Kazkhstan (BBB/Stable/F2) reflecting the entity's public sector status, its tight control by the sovereign and its important role in the government's economic policy. The ratings also factor in significant state-originated funding for Baiterek. Fitch rates Baiterek using a top-down rating approach under its 'Rating of Public-Sector Entities - Outside the United States' criteria and views it as a credit-linked entity.
KEY RATING DRIVERS
The affirmation reflects Baiterek's unchanged special legal status as a national management holding company acting as a development arm and quasi-fiscal vehicle of the government.
Legal Status Assessed as Stronger
Baiterek is a public joint stock company that was established in May 2013 by a decree of the President of Kazakhstan and Kazakhstan government order. It is 100% owned by Kazakhstan. Baiterek is one of three national management holding companies and acts as the state's quasi-fiscal vehicle, channelling funds from the state to the national economy. Baiterek's institutional mission is to foster Kazakhstan economic diversification and development. We do not expect these features to significantly change in the foreseeable future.
Integration Assessed as Stronger
Since inception, Baiterek has received regular state funding in the form of equity injections and subsidised budget loans (KZT159.4 billion and KZT117 billion as of end-2016, respectively), which demonstrates the close integration of Baiterek with the Kazakhstan budgetary system. During 2014-2016, Baiterek issued 12 non-market bond issues, which are 20 and 30-year bullet bonds with 0.1% annual coupon and a total nominal value of KZT843.1 billion (carrying KZT271.4 billion at end-2016). The entire bond issues were acquired by the National Bank on behalf of the National Fund of Kazakhstan. Baiterek passed through the state funding to its 11 subsidiaries, which in turn implement particular state policy in their respective areas. This highlights Baiterek's role in re-distribution of state-originated funds to the economy.
Control Assessed as Stronger
Baiterek's board of directors are appointed by the sole shareholder with the prime minister Bakytzhan Sagintayev serving as the board's chairperson. The board comprises key national officials as well as three independent directors, while the government of Kazakhstan approves the company's financial statements, retains control over its strategic decisions, mandates Baiterek's key policies on debt, dividends and investments, appoints its audit committee and external auditor, monitors and controls the use of state-originated funds.
Strategic Importance Assessed as Stronger
In Fitch's view, Baiterek is particularly important in implementing Kazakhstan's policy for economic development through diversification and support of non-resource economy sectors and innovation development, support of small and medium enterprises, and provision of affordable housing. As of end-2016 Baiterek held assets equal to about 9% of national GDP.
Fitch considers that the recently announced large-scale national privatisation programme will not weaken these major rating factors. Four of Baiterek's 11 subsidiaries were initially included in the programme and only one company - House Construction Savings Bank of Kazakhstan (BBB-/Stable) - is relatively large in terms of asset (about 15% of the group's assets). However, Baiterek claims to retain majority control of the company and keeps its policy function of promotion of housing affordability.
Sustainable Operating Profile Supported by State Funding
The Baiterek group has delivered growth in revenues, demonstrating operating profitability since inception. The group's net profit/total equity and reserves was 5.1% in 2016 (2015: 5.7%). As of end-2016, the group's total financial debt moderately grew to KZT2,247 billion (2015: KZT2,008 billion) due to continuous state funding, while the total equity and reserves/total debt ratio remained very strong at 42% (2015:43%). Baiterek's liquidity position is solid, with readily available cash and cash equivalents at KZT451.5 billion plus deposits of KZT743 billion at end-2016.
Baiterek's ratings mirror those of the sovereign. Positive rating action would result from an upgrade of Kazakhstan.
Conversely, negative rating action on Kazakhstan or weakening of Baiterek's links with the State, as evidenced, by issuance of material unguaranteed market debt, would lead to a downgrade.
Fitch Ratings CIS Ltd
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Source: Fitch Ratings