Moody’s downgrades Food Contract Corporation

business and economy

Moody’s downgrades Food Contract Corporation

By SRI ⋅ July 17, 2009 ⋅

(Moody’s) - Moody’s Investors Service has today downgraded to Ba1 from Baa3 the senior unsecured issuer rating of JSC National Company Food Contract Corporation (FCC).

Concurrently, Moody’s has withdrawn the issuer rating and has assigned a Ba1 Corporate Family rating and probability of default rating. The company’s ratings remain under review for possible downgrade.

“Today’s rating action results from Moody’s downward revision of the company’s baseline credit assessment (BCA - one of the contributing factors to the corporate family rating alongside assumptions on support and dependence) to 16 (B3 equivalent) from 14 (B1 equivalent). The rating action was prompted by Moody’s concerns surrounding the company’s reduced flexibility within the covenants on its foreign currency debt, which we understand has been exacerbated by the recent devaluation of the Kazakh Tenge,” says Stefano del Zompo, lead analyst for FCC at Moody’s. “Moody’s expects the lending banks and the government to continue to remain supportive of the company to meet its financial commitments going forward, although it will continue to closely monitor the materialization and timeliness of this ongoing support.”

“The current rating also reflects Moody’s belief that, given the high reliance of the company on external funding from the government to meet it financial obligations, the government will continue to sustain the company as it has done in the past, recognizing the strategic importance of the agriculture sector for Kazakhstan and the role played by FCC in its development,” explains Mr. del Zompo.

The rating remains under review for possible further downgrade. Moody’s review will focus on: (1) the financial covenants testing in coming quarters and the flexibility of the international banks in this regard; (2) the degree and timeliness of the government’s financial support in rebuilding sufficient headroom under the covenants over the next few quarters; and (3) the short- to medium-term prospects of the company and its capacity to withstand the current economic downturn in light of the planned investment program and available capital resources.

The company’s rating might be affirmed were the headroom within the covenants on FCC’s debt to be reconstituted to 2008 levels in conjunction with continued evidence of support from lending banks and the government. Conversely, a change in the assumptions regarding government support to the company or a failure to obtain a waiver from lending banks might result in a further rating downgrade.

The last rating action was on 15 June 2009 when Moody’s put FCC’s Baa3 ratings on review for downgrade given concerns regarding the company’s standalone creditworthiness primarily prompted by the concerns highlighted above in conjunction with also reviewing our support and dependence assumptions.

The principal methodology used in rating FCC was Moody’s Rating Methodology for Government-Related Issuers (”GRIs”) introduced in June 2005. Please, refer to Moody’s Rating Methodology entitled “The Application of Joint Default Analysis to Government-Related Issuers”, published in June 2005 and updated in July 2006. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody’s website.

Headquartered in Astana, Kazakhstan, JSC National Company Food Contract Corporation is fully owned by the state of Kazakhstan through the National Holding KazAgro. FCC’s principal mandate is to maintain state grain reserves at the levels required to supply the Kazakh population and to ensure timely grain replenishment. At the end of December 2008, FCC employed 1,718 people and reported revenues at KZT35 billion up from KZT24 billion the previous year.

Paris
Myriam Durand
Managing Director
Corporate Finance Group
Moody’s France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Stefano Del Zompo, CFA
Analyst
Corporate Finance Group
Moody’s Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454