Baku, Azerbaijan, Aug. 5
Fitch Ratings says that JSC National Company KazMunayGaz's (NC KMG) offer to its majority-owned subsidiary KazMunayGas Exploration Production JSC (KMG EP) for the latter's ordinary shares that it does not already own will not have any impact on its 'BBB'/Stable rating.
Last week, Kazakhstan wholly state-owned NC KMG stated that it approached independent non-executive Directors of KMG EP with the offer valued at USD18.5 per one KMG EP's global depositary receipt, equal to one-sixth of KMG EP's share. In total, NC KMG would be bidding for 36.8% of KMG EP's outstanding shares.
Currently there is no certainty whether the independent non-executive Directors of KMG EP will proceed with the negotiations or whether the deal will be completed. We believe that the transaction, if it takes place at the indicated price, has no rating implications for NC KMG as it is, in our analysis, essentially cash-neutral for the company. We estimate the total value of the shares to be acquired at the announced price is USD2.8bn, while KMG EP at end-2013 had significant cash on hand of USD3.9bn and negligible debt of USD44m. In our analysis, we assume that KMG EP will not make any distributions to its shareholders before the proposed transaction takes place. We expect that if the transaction is completed it will allow NC KMG a more easy access to KMG EP's cash, as well as a potential optimisation of certain overlapping operations between the parent and the subsidiary, in particular, in the exploration and production segment.
NC KMG's rating is linked directly to Kazakhstan's 'BBB+' (Stable) rating. NC KMG's rating is one notch below the sovereign, reflecting the lack of an explicit state guarantee for NC KMG's debt. Fitch views NC KMG's standalone operational and credit profile as commensurate with the 'BB' rating category due to the company's moderate size of production and reserves, reliance on dividends from joint ventures and fairly high gross leverage.