Kazakhstan, Astana, June 27 / Trend, D. Mukhtarov /
Fitch Ratings has affirmed JSC National Company KazMunayGas' in Kazakhstan (NC KMG) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. Fitch has also affirmed KazMunaiGaz Finance Sub B.V.'s foreign currency senior unsecured rating at 'BBB'.
"Wholly state-owned NC KMG is a holding company for Kazakhstan's (BBB+/Stable) interests in the oil & gas sector, and its ratings are notched down from the sovereign's," Fitch's report said.
Fitch views NC KMG's standalone operational and credit profile as commensurate with the 'BB' rating category. Its main upstream subsidiary is facing declining production, and Fitch expects that any output growth would come from the group's joint ventures (JVs) and associates. Fitch does not view the group's significant cash balance of KZT468 billion plus short-term deposits of KZT618 billion at end-Q113 as fully offsetting its high leverage and continues to focus its analysis on gross leverage metrics. The agency forecasts that NC KMG's funds from operations (FFO) gross adjusted leverage will remain above 4x in 2013-2016.
Fitch upgraded NC KMG's Long-term foreign and local currency IDRs in November 2012 to reflect the upgrade of Kazakhstan's Long-term foreign and local currency IDRs to 'BBB+' and 'A-' respectively. "Although NC KMG continues to benefit from strong links with the Kazakh state, an explicit state guarantee would be needed for a significant portion of NC KMG's debt to ensure full rating alignment, in our view," the report said.
Therefore, Fitch notches the group's ratings down one notch from the sovereign ratings. Fitch views NC KMG's standalone operational and credit profile as commensurate with the 'BB' rating category.
Fitch considers the continued development of the main oil and gas projects in Kazakhstan operated by NC KMG's JVs and associates, in which it has equity stakes, as a pre-requisite for production growth in the medium term. "This is in contrast to JSC KazMunaiGas Exploration Production, majority-owned by NC KMG, whose primary goal is to arrest natural production decline and maintain stable output levels from its oil fields. Nonetheless, upstream is likely to remain NC KMG's leading segment by EBITDA and cash flows contribution," Fitch's report said.
According to the report, NC KMG's Atyrau refinery upgrade is currently on-going. In 2013 the group expects to start upgrading its Shymkent and Pavlodar refineries to be completed by 2016 to ensure that all its products are compliant with Euro 4-5 emission standards. It estimates its total investments in downstream at USD5.2 billion by end-2016.
Fitch expects that cash dividends from NC KMG's JVs and affiliates will remain the main source of operating cash inflows in 2013-2014. "In 2012, NC KMG received KZT504 billion in dividends from its JVs and associates, up from KZT406 billion in 2011, while it only generated KZT94 billion in net cash flows from its consolidated subsidiaries," the report said. The agency anticipates that TengizChevroil LLP (TCO), NC KMG's largest affiliate by dividend contribution, will continue paying large dividends despite its expansion plans. In 2012, TCO paid KZT244 billion in dividends to NC KMG, a drop of nearly 20 percent on 2011 levels.