Baku, Azerbaijan, Nov. 17
By Aygun Badalova - Trend
Fitch Ratings has revised Kazakhstan Electricity Grid Operating Company's (KEGOC) Outlook to Negative from Stable while affirming its Long-term Issuer Default Rating (IDR) at 'BBB+'.
The Outlook revision reflects the agency's view of weakening support of KEGOC by its dominant, indirect shareholder - the Republic of Kazakhstan (BBB+/Stable), Fitch said in a report.
Fitch expects KEGOC to rely on new unguaranteed borrowings to finance its ambitious capex programme. Fitch said it is likely to downgrade KEGOC by one notch as the guaranteed debt falls below 40 percent of total (42 percent at end-2014).
KEGOC's rating continues to reflect overall strong links with the government and we expect timely support in case of need, including should financial covenants need to be waived or renegotiated, Fitch said.
The report noted that KEGOC plans to execute a substantial government-approved capex programme of KZT157 billion for 2015-2018. As a result, Fitch expects the company's free cash flow (FCF) to remain significantly negative for 2015-2018 (KZT15 billion annually).
The recent tenge devaluation by around 50 percent had a negative effect on the credit metrics of the company, as all of the debt is denominated in USD (62 percent at end-2014) and EUR (38 percent) with only a marginal part of the revenue denominated in USD (related to transnational electricity flow), according to the report.
As a result of the tenge devaluation in 2015 and high capex plans for 2015-2018, Fitch expects the company to breach its leverage covenant set forth by its lenders, EBRD and IBRD.