Kazakhstan#s DAMU Entrepreneurship Development Fund Ratings Lowered To #BBB-/A-3#; Outlook Negative

Stocks and Financial Services Press Releases Thursday February 25, 2016 09:12
Standard & Poor's--25 Feb--Standard & Poor's

On Feb. 24, 2016, Standard & Poor's Ratings Services lowered its long- and short-term ratings on DAMU Entrepreneurship Development Fund (DAMU) to 'BBB-/A-3' from 'BBB/A-2'. The outlook on the long-term ratings is negative. We also lowered our Kazakhstan national scale rating on DAMU to 'kzAA' from 'kzAA+'. The rating action reflects the downgrade of Kazakhstan on Feb. 17 (see "Kazakhstan Downgraded To 'BBB-/A-3' On Weaker Growth Outlook And Falling Current Account Receipts; Outlook Negative," published on RatingsDirect).

We equalize our ratings on DAMU with those on Kazakhstan because we consider the fund remains core to Baiterek Group, which broadly consists of development institutions targeting the diversification of Kazakhstan's economy, promoting small and midsize enterprises (SMEs), and helping resolve some of the government's social objectives. We assess the group credit profile (GCP) of the consolidated Baiterek Group at 'bbb-'. The GCP reflects the creditworthiness of the overall group, taking into account our view that there is an almost certain likelihood of government support to the consolidated group in a potential stress scenario.

We also believe there is an extremely high likelihood that the government would provide timely and extraordinary support to DAMU if needed, based on: DAMU's integral link with the government of Kazakhstan, which fully owns DAMU through JSC National Management Holding Baiterek. DAMU was established in 1997 by presidential decree.

The status of DAMU is reflected in the Entrepreneurial Code of the Republic of Kazakhstan, which specifically references the fund as an institution contributing to entrepreneurship development on behalf of the government. DAMU's board of directors is headed by the first deputy prime minister. DAMU's very important role for the government of Kazakhstan as the institution channeling government support to the SME sector. The government has set out the expansion of the SME sector as a priority for the development and diversification of the Kazakh economy, as seen in the importance the sector plays in various key policy agendas, most of which have been announced by President Nazarbayev. DAMU is the key vehicle for implementing the government's Business Roadmap 2020 program and the program of support of SMEs in the manufacturing industry.

According to management's estimates, DAMU's market share in total SME credit extended by the Kazakh banking system amounted to about 30% in 2015.The negative outlook mirrors that on the sovereign ratings. We would likely raise or lower the ratings on DAMU if we raised or lowered our ratings on Kazakhstan. We could also lower the ratings if we saw that DAMU's role within the Baiterek Group had become less important, or that government support was dwindling.

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