S&P affirms Kazakh ENRC 'BB-/B' Ratings with Outlook Negative
Azerbaijan, Baku, Feb. 28 / Trend E. Kosolapova/
Standard & Poor's Ratings Services affirmed its 'BB-/B' long- and short-term corporate credit ratings on Kazakhstan-based mining group Eurasian Natural Resources Corp. PLC (ENRC), the S&P reported. The outlook remains negative.
"The affirmation reflects our expectation that management will moderate its investment appetite in 2013-2014 and prevent debt from rising through disposals and other actions, while improving its liquidity and governance. Near-term deviations from these assumptions would lead us to lower the ratings," the S&P said.
The affirmation factors in ENRC's significant cuts to its 2013 capital expenditure (capex) program.
"Under our revised forecast, we see ENRC's adjusted debt stabilizing at about $5.8 billion in 2013 with funds from operations (FFO) to debt in a range from 20 to 25 percent, compared with our 2012 forecast at the lower part of the range
S&P factors in no new acquisitions and capex of only $1.7-1.8 billion in 2013.
"Our assessment of management and governance as "weak" according to our criteria takes ENRC's previous track record into account. That said, we view the group's 2012 initiatives positively, including the appointment of a new chairman and senior independent director, commitment to raising corporate governance standards, and intention to improve management's depth and breadth," S&P said.
The rating continues to reflect S&P assessment of the groups business risk profile as "fair."
Commodity price and exchange rate volatility, the capital intensity of ENRC's business, and project risks related to its sizable investment plan constrain the group's business risk profile.
The rating reflects the group's stand-alone credit quality.
"Although ENRC is 11.6 percent government owned, we see a "low" likelihood that the Republic of Kazakhstan (would provide timely and sufficient support to ENRC in the event of financial distress," S&P said.
The negative outlook continues to reflect the possibility of a downgrade in 2013 if the company fails to improve liquidity in the next several months, including increasing the covenant threshold, as we currently anticipate.