Kazakhstan May Limit Borrowing by State Companies

Kazakhstan is planning to impose borrowing limits on state-run companies after the government of President Nursultan Nazarbayev brought its debt to among the lowest levels worldwide, said Finance Minister Bolat Zhamishev.

Government debt is capped at 60 percent of gross domestic product and state-run companies should also have curbs on leverage and external borrowing, Zhamishev said in a May 19 interview in London, speaking through an interpreter.

“We already have limits to state debt, but unfortunately we don’t have limits for debt on the quasi-state level,” Zamishev said. “At the same time we do have big national companies that are subject to development and therefore they have to do international borrowing, on a best-practice basis.”

The Central Asian nation used $10 billion from its oil fund to support banks and companies after credit markets froze in 2008. The economy will grow 6 percent this year, after expanding 7.5 percent last year, the International Monetary Fund predicted May 8. The pace of expansion calls for “continuation of the ongoing fiscal adjustment,” according to the Washington-based lender.

The IMF projects Kazakhstan’s gross government debt at 8.3 percent of economic output next year, the eighth lowest in the world and down from an estimated 9.6 percent in 2012 and 10.9 percent in 2011. The country doesn’t have outstanding foreign-currency bonds after redeeming its last notes in 2007.

The second-largest oil producer in the former Soviet Union after Russia was upgraded one step to BBB at Fitch Ratings in November with a positive outlook. The move followed Standard & Poor’s decision the same month month to boost Kazakhstan’s debt rating to BBB+, the third-lowest investment grade, pushing it ahead of Russia.

Quasi-State Debt

“It’s not only about limiting but also the way of managing quasi-state debt,” Zamishev said.

KazMunaiGaz National Co., whose revenue rose to 2.6 trillion tenge ($17.6 billion) last year, has about $13.6 billion of debt, according to data compiled by Bloomberg. The state energy producer said March 12 it will raise $2.5 billion selling bonds to the National Oil Fund in 2013, removing the need to borrow abroad this year. The fund is managed by the country’s central bank.

“It could have negative repercussions for foreign investors who are in joint ventures with state companies, as the borrowing costs for those companies could increase,” Gemma Ferst, a London-based analyst at Eurasia Group, said by e-mail. “More broadly, the move contradicts Kazakhstan’s stated plans to diversify its economy via foreign investment and should be seen as further evidence that Nazarbayev is slowly but surely veering economic policy toward greater economic nationalism.”

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