Fitch affirms Kazatomprom at 'BBB-' with stable outlook

Azerbaijan, Baku, July 19 / Trend E. Kosolapova/

Fitch Ratings has affirmed National Atomic Company Kazatomprom's Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-', Short-term IDR at 'F3' and foreign currency senior unsecured rating at 'BBB-', the agency reported on Friday.

The Outlook on the Long-term IDR is Stable.

"Kazatomprom's investment-grade rating continues to be primarily driven by its leading position in global uranium mining, stable operating profile, the fact that most of its uranium production volumes have been contracted over the medium term, its competitive cash costs compared with those of its global peers and relatively stable profit margins despite market challenges following the Fukushima accident in 2011," Fitch said.

In 2012, Kazatomprom maintained its leading position in global uranium mining with a market share of 20 percent. It also benefits from high barriers to entry as the uranium mining industry requires special certification and licensing with long lead times and specialised expertise.

Although Kazatomprom's direct exposure to Japan's Fukushima-Daichi nuclear power plant is fairly limited, negative market sentiment is reflected in uranium oxide (U3O8) futures prices, in particular the noticeable drop in expectations over the past years. In Fitch's view, a sustained uranium price decline may have a lasting negative impact on Kazatomprom's earnings given the inclusion of spot price elements in company's existing long-term sales contracts. Kazatomprom's ratings are constrained by its presently limited diversification and exposure to uranium price volatility. The latter could be mitigated by the expected vertical integration and shift to higher value-added products and services in the long term as well as its strong market position, contracted sales and ramped-up production.
Future developments that could lead to positive rating actions include:
- Reduction of FFO gross adjusted leverage to below 1.5x on a sustained basis would be positive for the ratings. However, Fitch does not forecast such deleveraging to take place in the medium term due to Kazatomprom's intensive capex plans.
- Successful implementation of the vertical integration strategy, while maintaining a sound financial profile could be positive for the rating.
Future developments that could lead to negative rating action include:
- Deterioration of FFO gross adjusted leverage beyond 2.5x on a sustained basis due to, among other things, a more aggressive capex programme, acquisitions and/or lower than expected uranium prices would put pressure on the rating.
Kazatomprom is Kazakh national operator for import and export of uranium, rare metals, nuclear fuel for power plants, special equipment and dual-purpose materials. The company is owned by the government through the Kazakh Sovereign Wealth Fund Samruk-Kazyna.

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