Baku, Azerbaijan, July 30
By Elena Kosolapova- Trend: Standard & Poor's ratings on Kazakh National Oil and Gas Company KazMunaiGas (KMG; corporate credit rating BBB-/Negative/--; Kazakh national scale rating kzAA/--/--) and KazMunaiGas Exploration Production (KMGEP; BBB-/Negative/--) are unchanged following the preliminary approach by KMG to the independent directors of its 63 percent owned subsidiary KMG EP about a possible offer to acquire the remaining outstanding shares in KMG EP, the rating agency said on July 30.
"We understand that this is only a preliminary approach; KMG has not made a final offer. If the deal proceeds and the acquisition is adequately refinanced, we expect that the transaction would not affect our current ratings on KMG and KMG EP," the company said.
KMG's interest in fully acquiring KMG EP supports the view of KMG EP as a core subsidiary of KMG, a government-controlled vertically integrated oil company. As per S&P's methodology, the rating on KMG EP is equalized with the rating on the parent. S&P's rating on KMG continues to reflect the expectation of an "extremely high" likelihood of timely and sufficient extraordinary government support from Kazakhstan.
Should the transaction proceed, S&P currently anticipates that it would not affect KMG's stand-alone credit profile, which the agency currently assess at 'b+'. Although the offer may increase short-term liquidity needs at the parent level, S&P projects that liquidity and leverage would remain manageable. At this stage, KMG has indicated an offer price of about $2.8 billion for all the outstanding shares. This may increase KMG's gross debt at least temporarily, but the impact is offset by access to large cash balances at KMG EP of $4.15 billion and essentially no debt as of March 31, 2014. Currently, S&P doesn't net this cash from KMG's debt, because it is at the subsidiary level and not directly accessible for the parent.