Baku, Azerbaijan, April 15
By Elena Kosolapova - Trend:
Standard & Poor's Ratings Services has affirmed its 'BB+' long-term corporate credit ratings on Kazakh gas utility company KazTransGas (KTG) and its 100-percent owned gas pipeline operator Intergas Central Asia JSC (ICA), the rating agency reported on April 14. The outlook on both companies is stable.
The agency also affirmed the 'BB+' rating on the senior unsecured debt issued by Intergas Finance B.V.
"The affirmation reflects our view that KTG continues to enjoy a "moderately high" likelihood of timely and sufficient extraordinary government support from the government of Kazakhstan. It also reflects our assessment of KTG's stand-alone credit profile (SACP) at 'bb', based on its "fair" business risk profile, "intermediate" financial risk profile, and "negative" financial policy," S&P said.
The agency views KTG as a "moderately strategic" part of Kazakh National Company KazMunaiGas.
"We assume, however, that in case of financial stress, any extraordinary support to KTG would likely come directly from the government. Therefore, we determine the corporate credit rating on KTG based on its SACP plus uplift for potential government suppor," S&P said.
The agency equalizes the ratings on ICA with those on KTG, reflecting the overall creditworthiness of the KTG group. The consolidated approach reflects the companies' close integration, KTG's 100-percent ownership of ICA and other major subsidiaries, financial guarantees on much of the group's debt issued by ICA and KTG, large intragroup cash flows, and an absence of effective subsidiary ring fencing.
KTG's SACP reflects its "fair" business risk profile, "intermediate" financial risk profile, and a one-notch downward adjustment for our "negative" financial policy modifier.
The stable outlook reflects the view that the risks associated with KTG's planned heavy capital expenditures, growing exposure to the more volatile gas retail segment, and potential dividend pressure from KMG are balanced by KTG's solid market position, moderate projected debt levels over 2014-2015 (which S&P considers to be commensurate with an "intermediate" financial risk profile), and adequate liquidity and maturity profiles.
Ratings upside might result from a fundamental and sustainable improvement in the group's financial credit measures. Notably, S&P would expect to see FFO to debt above 45 percent and debt to EBITDA below 2x on a constant basis (without any potential stresses to liquidity) to consider an upgrade.
Under S&P criteria for GREs, a one-notch upward revision of the SACP would lead lead the agency to raise the long-term rating on KTG by one notch, all else being equal.
A track record of stronger motivation on the part of the government to provide financial aid to the entity might lead us to reassess upward the likelihood of extraordinary government support for KTG. In accordance with our criteria, such a revision would result in an upgrade of KTG.
S&P thinks pressure on KTG's credit profile could result from a more aggressive financial profile than we currently anticipate. That would include weakened credit ratios due to any unexpected financial underperformance, extensive reliance on short-term funding, or KTG's increased capital expenditures requiring significant external borrowing and leading to leverage above our expectations.
If S&P revised down its assessment of KTG's SACP by one notch, it would lead the agency to lower the long-term rating to 'BB', provided that the sovereign long-term local currency rating and the likelihood of extraordinary financial government support remained the same.
If the agency saw signs of weakening state support, it might consider revising down the likelihood of extraordinary government support for KTG.
"Under our criteria for GREs, however, we would have to revise the likelihood of extraordinary government support down to "limited" from the current "moderately high" to result in a downgrade of KTG. We don't consider this to be likely in the next two years," S&P said.
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