Primary Credit Analysts:
Elena Anankina, CFA, Moscow (7) 495-783-4130; email@example.com
Sergei Gorin, Moscow (7) 495-783-4132; firstname.lastname@example.org
Mikhail Davydov, Moscow (7) 495 662 3492; email@example.com
Anna Brusinets, Moscow +7 (495) 7834060; firstname.lastname@example.org
Alexander Griaznov, Moscow (7) 495-783-4109; email@example.com
• On Sept. 8, 2017, we revised our outlook on the Republic of Kazakhstan to stable from negative and affirmed our 'BBB-/A-3' sovereign credit ratings.
• We are therefore revising our outlooks on four Kazakh companies to stable from negative, mirroring the outlook revision on Kazakhstan.
• We are affirming the ratings and maintaining the negative outlooks on five Kazakh companies, reflecting factors specific to each entity.
MOSCOW (S&P Global Ratings) Sept. 12, 2017--S&P Global Ratings today took various rating actions on a number of Kazakhstan-based corporations.
Specifically, we have revised the outlooks to stable from negative on:
• Oil producer Tengizchevroil LLP (TCO), and affirmed the 'BBB' ratings.
• Kazakhstan Electricity Grid Operating Co. (KEGOC), and affirmed the 'BB' ratings.
• Railway operator Kazakhstan Temir Zholy (KTZ) and its core subsidiary JSC Kaztemirtrans, and affirmed the 'BB-' long-term global scale and 'kzBBB+' national scale ratings.
In addition, we have affirmed our 'BB' long-term global scale rating and 'kzA' national scale rating on oil company KazMunayGas (KMG). The outlook remains negative. We have also affirmed our 'BB' rating on KMG's core subsidiary KazMunaiGas Exploration Production JSC. The outlook is still negative.
Furthermore, we have affirmed our 'BB' long-term ratings on gas utility Company KazTransGas (KTG) and its core subsidiary Intergas Central Asia JSC. The outlooks remain negative. We have also affirmed our 'BB' rating on pipeline operator KazTransOil. The outlook is still negative.
These rating actions follow our recent outlook revision on the Republic of Kazakhstan (see "Kazakhstan Outlook Revised To Stable On Improved Monetary Policy Flexibility; 'BBB-/A-3' Ratings Affirmed," published Sept. 8, 2017, on RatingsDirect). We consider that Kazakhstan's monetary policy flexibility has become less constrained following the sharp decline in resident deposit dollarization in the economy. This has prompted us to review our analyses of the aforementioned companies in Kazakhstan's commodity export, infrastructure, and utility sector.
Tengizchevroil LLP (TCO)
The outlook revision follows the similar rating action on Kazakhstan. Given TCO's 100% exposure to Kazakhstan, we do not expect to rate it more than one notch above the sovereign rating. We believe that TCO should be able to maintain funds from operations (FFO) to debt of above 20% and comfortably within the thresholds for the current rating. We think that that short-term oil price volatility would unlikely drive a rating change on its own, as the long-term evolution of TCO's credit metrics would largely depend on long-term oil prices, which is currently $55 per barrel.
We would lower our long-term rating on TCO if we lowered our long-term foreign currency rating on Kazakhstan or revised down our transfer and convertibility (T&C) assessment on the country by one notch. We could also downgrade TCO if we revised down our long-term oil price assumption to below $40 and if FFO to debt dropped to well below 20% on average. Other factors that could constrain the rating include a deterioration of our view on country risk in Kazakhstan, for instance due to a material revision of the local tax regulation, or major disruptions to the Caspian pipeline, which we currently do not expect.
We could also lower the rating if we observed less participation into financing from Chevron and other shareholders than we factor in today, adversely affecting TCO's capital structure.
The upside is unlikely in the next two years, as we expect the company's leverage to increase materially, while we expect oil prices to remain limited, at $50-$55 in 2018-2019. A higher rating on TCO would also be dependent upon improvements in the country risk in Kazakhstan, which we currently view as a key constraining factor for the rating.
Kazakhstan Electricity Grid Operating Co. (JSC) (KEGOC)
The outlook revision follows the rating action on Kazakhstan.
We continue to regard KEGOC as a government-related entity (GRE) that will remain strategically important and operationally close to Kazakhstan's government. In addition, we anticipate that KEGOC's operations will continue to benefit from substantial ongoing government support. Furthermore, we project that the company will maintain moderately high debt leverage, with FFO to debt of 25%-30% in 2017.
Given current headroom in the rating, we regard a negative rating action as unlikely.
If we were to revise our assessment of KEGOC's stand-alone credit profile (SACP) down by one notch or negatively reassess the likelihood of extraordinary government support to high, we would not automatically downgrade KEGOC.
A one-notch downgrade of Kazakhstan would likely lead to a one-notch downgrade of KEGOC, all else being equal.
Ratings upside could stem from better-than-expected credit metrics, on the back of stronger operational and financial performances, and improved capital structure, providing the company maintains prudent financial policies and adequate liquidity.
Kazakhstan Temir Zholy (KTZ)
The outlook revision follows the rating action on Kazakhstan.
We continue to see the likelihood of timely and sufficient extraordinary financial support from the Kazakh government to KTZ as high. KTZ is a national railroad company responsible for about one-half of all freight traffic in Kazakhstan. KTZ plays a key role in land-locked Kazakhstan's national transport sector. We note that the government ultimately provided, although with some delay, Kazakh tenge (KZT) 50 billion (About $150 million) in extraordinary support to KTZ in relation to the refinancing of a $350 million Eurobond in May 2016.
The stable outlook on KTZ also incorporates our view that the company will continue to report high leverage over the next 12 months. We expect that KTZ's S&P Global Ratings-adjusted debt-to-EBITDA ratio will remain above 5x and its FFO to debt below 12% on the back of generally stable operating performance.
We also assume that KTZ will sufficiently and timely fund all of its liquidity needs, including debt maturities and maintenance capital expenditures (capex). Furthermore, we expect that KTZ will obtain waivers for the covenants it might breach, as it has done in the past.
Rating downside could stem from a negative rating action on Kazakhstan, signsof lower government support, or a pronounced deterioration of liquidity (if the company fails to refinance upcoming debt maturities or obtain waivers for the covenant breaches), which is not our base-case scenario.
Rating upside would hinge on a 'b+' SACP, versus 'b-' currently, since we already incorporate into the rating support from the sovereign. This scenario could unfold if KTZ's financial metrics strengthen sustainably, namely FFO to debt above 12% and debt to EBITDA below 5x as a result of considerable improvements in EBITDA generation or deleveraging. However, we see limited possibility of ratings upside in the near term.
KazMunayGas NC JSC (KMG)
The affirmation reflects KMG's SACP, which we assess at 'b', and ratings uplift based on our expectation of a very high likelihood of extraordinary state support for KMG if needed. KMG is a fully government-controlled vertically integrated national oil company with stakes in most hydrocarbon ventures in the country. We also note KMG's relatively high leverage and stabilizing performance after the 2014-2015 downturn in Kazakhstan.
The negative outlook continues to reflect the ongoing uncertainty about KMG's option to buy back Kashagan stake from its parent, Samruk-Kazyna. In our view, if KMG has to exercise this option without sufficient state support, the impact on KMG's leverage and liquidity would be significant and possible lead to a downgrade. In our opinion, KMG has weak stand-alone creditworthiness, as we reflect in our 'b' assessment of its SACP. We will continue to monitor the government's willingness to support the company.
We could also lower the rating if we were to revise down KMG's SACP to 'ccc+' or lower, which could happen in the event of a material deterioration in liquidity, debt-financed investments well above our current assumptions, or significantly lower oil prices that undermine the company's sustainable EBITDA generation. These are not our base-case scenarios for the rating, however.
An outlook revision to stable could stem from less uncertainty regarding the debt-financed buyback of Kashagan stake, as well as from our assessment of increased government support for KMG that could offset any potential deterioration in KMG's SACP.
The affirmation reflects our 'bb' assessment of KTG's SACP, our expectation of moderately high likelihood of extraordinary state support, and our view of KTG's moderately strategic importance for the KMG group. We assume that extraordinary support in the event of financial stress would likely come directly from the government, rather than from the parent. Furthermore, we currently do not factor into the rating uplift for potential government support, considering the relatively high SACP.
The negative outlook on KTG reflects that on KMG and our view that the rating is capped at the level of the rating on the parent. We do not expect to rate KTG higher than KMG, so a downgrade of KMG will lead to a similar rating action on KTG.
In addition, a pronounced deterioration of KTG's SACP, which we currently see as unlikely, or indications of negative interference from the parent or the state could lead us to re assess our view of the likelihood of support from the state or parent and, in turn, downgrade KTG.
We would likely revise the outlook on KTG to stable if we took a similar action on KMG.
The rating affirmation reflects our 'bb+' assessment of KTO's SACP, our expectation of a high likelihood of extraordinary state support, and our view of KTO's strategic importance for KMG group. We assume that extraordinary support in the event of financial stress would likely come directly from the government, rather than the parent. We currently do not factor into the rating uplift for potential government support, considering the relatively high SACP.
The negative outlook on KTO reflects our outlook on the parent and that the rating is capped at the level of the rating on KMG. We currently assess KMG's SACP as 'b'.
We do not expect to rate KTO higher than its parent. That said, a downgrade of KMG will lead to a similar rating action on KTO. Given KTO's 'bb+' SACP, we believe rating downside would stem from a negative rating action on KMG. Still, although not included in our base case, pressure on the rating could arise from a combination of the following:
• Indications of negative interference from the parent;
• A lower likelihood of extraordinary state support; and
• A marked deterioration of KTO's SACP.
We would likely revise the outlook on KTO to stable if we took a similar action on KMG.
• General Criteria: S&P Global Ratings' National And Regional Scale Mapping Tables, Aug. 14, 2017
• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings , April 7, 2017
• General Criteria: Guarantee Criteria, Oct. 21, 2016
• General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
• General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
• General Criteria: National And Regional Scale Credit Ratings, Sept. 22, 2014
• Criteria - Corporates - Industrials: Key Credit Factors For The Midstream Energy Industry, Dec. 19, 2013
• Criteria - Corporates - Industrials: Key Credit Factors For The Oil And Gas Exploration And Production Industry, Dec. 12, 2013
• General Criteria: Methodology: Industry Risk, Nov. 19, 2013
• General Criteria: Group Rating Methodology, Nov. 19, 2013
• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• Criteria - Corporates - Utilities: Key Credit Factors For The Regulated Utilities Industry, Nov. 19, 2013
• Criteria - Corporates - General: Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013
• Criteria - Corporates - General: Corporate Methodology, Nov. 19, 2013
• General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013
• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012
• General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
• Criteria - Corporates - General: 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
• Kazakhstan Outlook Revised To Stable On Improved Monetary Policy Flexibility; 'BBB-/A-3' Ratings Affirmed, Sept. 8, 2017
Outlook Action; Rating Affirmed
Corporate Credit Rating BBB/Stable/-- BBB/Negative/--
Kazakhstan Electricity Grid Operating Co. (JSC)
Corporate Credit Rating BB/Stable/-- BB/Negative/--
Kazakhstan Temir Zholy
Corporate Credit Rating BB-/Stable/-- BB-/Negative/--
National Scale Rating kzBBB+/--/-- kzBBB+/--/--
KazMunayGas NC JSC
Corporate Credit Rating BB/Negative/--
National Scale Rating kzA/--/--
KazMunaiGas Exploration Production JSC
Corporate Credit Rating BB/Negative/--
Intergas Central Asia JSC
Corporate Credit Rating BB/Negative/--
Corporate Credit Rating BB/Negative/--
N.B. This list does not include all ratings affected.
Industrial Ratings Europe; Corporate_Admin_London@spglobal.com
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
Copyright © 2017 by Standard & Poor’s Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC.