Fitch affirms Kazakhstan's National Management Holding Baiterek at 'BBB+'; Outlook stable

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LONDON. KAZINFORM - Fitch Ratings has affirmed Kazakhstan's Joint Stock Company National Management Holding Baiterek's (Baiterek) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB+', Long-term local currency IDR at 'A-', National Long-Term rating at 'AAA(kaz)' and Short-term foreign currency IDR at 'F2'. The Outlooks on the Long-Term ratings are Stable, according to Fitchratings.ru.

Fitch has also affirmed Baiterek's senior unsecured domestic bond issues at Long-term local currency 'A-' and a National Long-term 'AAA(kaz)'. The affirmation of the IDRs and senior debt ratings reflects Baiterek's unchanged special legal status as a national management holding company acting as a development arm of the government, 100% owned by Kazakhstan (BBB+/A-/Stable). KEY RATING DRIVERS Baiterek's ratings are equalised with those of Kazakhstan to reflect 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 reflect significant state-originated funding for Baiterek. Fitch uses its public-sector entities rating criteria to rate Baiterek and views it as a credit-linked entity. Baiterek is Kazakhstan's development institution and performs a key function of the government focused on economic development and diversification, small and medium-sized enterprises support and developing affordable housing provision. Baiterek is one of three national management holding companies and was established in May 2013 by a decree of the President of Kazakhstan. The other two management holding companies are Samruk-Kazyna (BBB+/A-/Stable) and KazAgro (BBB/BBB+/Stable). Baiterek Group includes 11 subsidiaries, including Development Bank of Kazakhstan (BBB/BBB+/Stable), Damu Entrepreneurship Development Fund, Kazakhstan Mortgage Company (BBB-/BBB/Stable), House Construction Savings Bank of Kazakhstan (BBB+/AAA(kaz)/Stable). Fitch rates Baiterek as a standalone entity and does not factor in the group's consolidated financial results and obligations. Baiterek operates under strong control and oversight from the central government. Its Board of Directors is chaired by the Prime Minister of Kazakhstan and includes First Deputy Prime Minister and the key national ministers of finance, economic development and investment as well as independent directors. The state sets up the company's debt, dividends and investment policy, appoints Baiterek's audit committee and external auditor, monitors and controls the use of funds allocated from the state budget to the entity. Fitch considers the entity's integration into the general government sector is moderate. Baiterek has a separate budget and its debt is not consolidated in state debt but considered as quazi-sovereign liabilities. Baiterek had no market debt as of 1 July 2015, as the company relies solely on government funding in the form of equity injections and non-market debt. During 2014-1Q15, Baiterek issued seven non-market bond issues with nominal value of KZT573.6bn (carrying amount of KZT186.8bn at 1 July 2015). The entire bond issues were acquired by the National Bank on behalf of the National Fund of Kazakhstan and comprised 20 and 30-year bullet bonds with 0.1% annual coupon. Fitch expects that Baiterek will continue receive support from the state budget and the National Fund of the Republic of Kazakhstan. By end-2016, Baiterek plans to receive KZT52.5bn from the National Fund (2014-1H2015: KZT573.6bn) through the issue of non-market bonds, KZT15bn of equity injection (2014: KZT55.2bn) and KZT30bn of subsidised budget loans. Fitch believes that additional direct or indirect support by the government would be highly likely if needed. RATING SENSITIVITIES Baiterek's ratings mirror those of the sovereign. A 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. KEY ASSUMPTIONS Fitch assumes Baiterek will continue to benefit from its special status of national management holding. Therefore, its strategic importance, the link with the state and the government willingness to provide support will remain strong.

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