Moody's maintains Kazakhstan's 'Baa2' Rating; moves Outlook to Stable

    Moody's Investors Service has moved the outlook on Kazakhstan's Baa2 sovereign rating to stable fr om negative.
    This move follows growing evidence that the economic downturn is proving shallower than expected, and that the government's credit metrics will emerge relatively unscathed from the country's serious banking crisis.
    "The government of Kazakhstan has weathered the worst of the crisis in a way consistent with an investment grade rating by protecting its creditworthiness but forcing credit restructuring on to the country's banking system" says Mr. Aninda Mitra, a Vice President and Moody's lead sovereign analyst for the country.
    At the same time, the country's foreign currency bond ceiling was lowered one notch to Baa2, the same level as the sovereign rating, while the FC bank deposit ceiling was maintained at Ba1.
    "The alignment of the country's foreign currency bond ceiling with the government's bond rating reflects our view that crisis management in Kazakhstan focuses primarily on protecting the government's balance sheet.
    It therefore suggests that private debt issuers in foreign currency should seldom be rated higher than the Sovereign."
    Mr. Mitra added that "the relatively rapid restructuring of external bank debt -- wh ere a large proportion of the burden has been borne by creditors -- characterizes a proactive but highly selective approach by the government to elicit a speedy resolution to banking system distress."
    "The limitation of large contingent sovereign liabilities thus depends on a high degree of credit ring-fencing," Mitra writes, "and the accompanying uncertainty about the authorities' support for banks, and private institutions as well as several government-related institutions justifies a more conservative stance on bond and deposit ceilings and support assumptions."
    "Nevertheless, overall, the Kazakh government's fiscal conservatism has persisted alongside a proactive crisis management framework. "This has enabled authorities to withstand financial shocks, without depending on external assistance or damaging long-term sovereign credit fundamentals," says Mr. Mitra.
    Moreover, strong medium-term prospects for the oil and gas sector and growing structural linkages with rapidly-growing Asian economies will likely sustain an economic recovery and provide additional liquidity to complement ongoing reforms within the banking sector.
    Moody's last rating action on Kazakhstan was taken on May 12, 2009, at which time the local currency sovereign rating was lowered to Baa2 from Baa1, and the outlook was changed to negative, according to CBonds.