Fitch Assigns KazExportAstyk's Planned Local Currency Bond 'B(exp)'; RWN

Fitch Ratings-London/Moscow-17 August 2011: Fitch Ratings has assigned JSC Holding KazExportAstyk's (KazExportAstyk) prospective KZT40bn five-year unsecured bond an expected Local currency unsecured rating of 'B(exp)' and a Recovery Rating of 'RR4'. Fitch also assigned the bond a local currency unsecured National rating of 'BB (exp)(kaz)'. All ratings are on Rating Watch Negative (RWN).

The resolution of the RWN on the planned bond, which could be an adverse multi-notch rating action, is dependent on addressing near-term refinancing issues while permanently reducing the amount of secured debt facilities to a maximum of USD225m (or equivalent in other currencies) including undrawn revolving credit facilities (RCF). KazExportAstyk's available secured credit lines currently amount to USD500m. The reduction is expected to be achieved through the permanent cancellation of secured RCFs and the application of proceeds from a combination of the proposed bond, bilateral facility re-financings and a potential equity investment.

As of 30 June 2011 KazExportAstyk had USD479m (or equivalent in other currencies) in total drawn consolidated debt. Around 40% of this was debt due within 12 months. While Fitch remains concerned over KazExportAstyk's high level of short-term funding maturities (see "Fitch Rates Kazakhstan's JSC Holding KazExportAstyk 'B'; Rating Watch Negative" dated 17 August 2011 at www.fitchratings.com), the proposed bond should help to adequately term out KazExportAstyk's debt profile, mitigating any profit volatility inherent to the agriculture business. Fitch expects the company to maintain RCFs of circa USD100m for peak working capital funding throughout the year.

The bond issue is an unsecured and unguaranteed obligation. Currently around 60%-70% of revenues, EBITDA and assets are received or held at the holding company level. The bonds are subordinated to all secured debt at the holding company level and all remaining secured or unsecured debt at the operating company level. However, Fitch expects that, post refinancing, nearly all debt will be at the holding company level with substantially reduced levels of secured financing.

In the agency's opinion, the bond documentation provides little protection for unsecured bondholders due to the lack of robust covenants, including restrictions to incur additional indebtedness. In addition, the absence of any cross-default provisions, mandatory prepayment clauses or dividend restrictions further weakens unsecured creditors' positions. Fitch notes the inclusion of a "force-majeure" clause which, if triggered, stipulates that obligations under the loan documentation may be postponed due to circumstances that could not be foreseen or prevented. This could further weaken any potential enforcement on behalf of unsecured creditors, as the ability to declare a default could prove limited.

Despite the weak terms of the planned bond offering, the liquidation value approach using conservative assumptions under Fitch's Recovery Rating methodology yields a higher recovery than a going concern valuation. This is partially due to the high level of inventories and realisable prepayment/receivables. The agency caps the recovery rating for Kazakhstan corporates at 'RR4', reflecting average recoveries in the event of default (between 31% and 50%).

Contact:
Primary Analyst
Malcolm O'Connell
Associate Director
+44 20 3530 1201
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Secondary Analyst
Graham Barker
Associate Director
+44 20 3530 1123

Committee Chairperson
Pablo Mazzini
Senior Director
+44 20 3530 1021

Media contact: Anna Bykova, Moscow, Tel.: + 7 495 956 9903/9901, anna.bykova@fitchratings.com

Additional information is available at www.fitchratings.com

Applicable criteria, 'Corporate Ratings Methodology', dated 12 August 2011, 'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers', dated 12 May 2011, and 'Country-specific Treatment of Recovery Ratings', dated 23 February 2011, are available at www.fitchratings.com

Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(kaz)' for National ratings in Kazakhstan. Specific letter grades are not therefore internationally comparable.

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