Azerbaijan, Baku, Jan. 11 / Trend E. Kosolapova/
Fitch Ratings revised the Outlook on Kazakh Kazakhtelecom JSC's (Kaztel) Long-Term Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'BB'.
Short-Term IDR was affirmed at 'B'. Outlook on Local currency Long-Term IDR was revised to Negative from Stable and affirmed at 'BB'. Outlook on National Long-Term Rating was revised to Negative from Stable and affirmed at 'A(kaz)'. Senior Unsecured Debt in foreign currency was affirmed at 'BB'. Senior Unsecured Debt in local currency was affirmed at 'A(kaz)'
Kaztel is a strong fixed-line incumbent with a near monopoly position in the traditional telephony and high broadband market share operating in a benign regulatory environment.
"The revision of the Outlook to Negative is driven by the company's ambitions to re-enter the mobile segment. Mobile ambitions may dilute operating strengths and push the gross leverage above the downgrade threshold identified as 2.5x gross debt/EBITDA," Fitch said.
According to Fitch, Kaztel is likely to maintain its dominant position in the fixed-line segment, helped by benign regulation and the scarcity of alternative networks. Kaztel estimated its fixed-line telephony market share at a high 92 percent at end-2011.
Fixed-to-mobile substitution is the key threat, and this will drive modest fixed-line disconnections and pricing pressures, in Fitch's view.
According to the agency, Kazakh broadband market retains strong growth potential, driven by relatively low broadband penetration in the country (estimated by the company at only 15 percent of households at end-2011).
"Faced with only limited alternative infrastructure, Kaztel is best positioned to benefit from this growth," Fitch said.
Meanwhile, according to Fitch, Kaztel's plans to re-enter the mobile market with a greenfield LTE network may have limited operating success, although the project will be the key leverage driver in 2013-2015.
"The Kazakh mobile market is well penetrated with 3G services and is highly competitive. Rivalry intensified with the arrival of Tele2, which has successfully pursued a discounter strategy," the agency said.
According to Fitch, Kaztel's ratings reflect its standalone credit profile.
"Kaztel is of only limited strategic importance for Kazakhstan while operating and legal ties with its controlling shareholder, government-controlled Samruk-Kazyna, are weak," the agency said.
Although indirect government control is a positive credit factor, it does not justify any notching up of the rating, in Fitch's view.
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