Baku, Azerbaijan, Nov. 15
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Standard & Poor's Ratings Services (S&P) revised its outlook on Kazakhstan-based state-owned vertically integrated electric utility Samruk-Energy JSC to negative from stable, S&P reported on Thursday. At the same time, we affirmed our 'BB+/B' long- and short-term corporate credit ratings and 'kzAA-' national scale rating.
S&P affirmed the issue rating on Samruk-Energy's $500 million notes at 'BB+'. The recovery rating on these notes is unchanged at '4', indicating our expectation of average (30%-50%) recovery in the event of a payment default.
"The outlook revision reflects our opinion that Samruk-Energy's 2013-2014 investment levels--including acquisitions--might be higher than we previously anticipated and that the group could struggle to sustainably maintain credit metrics commensurate with the current 'b+' stand-alone credit profile (SACP)," the statement said. "Our current base-case scenario assumes that the Standard & Poor's-adjusted debt-to-EBITDA ratio will remain below 4.0x in 2013-2014."
S&P assessment factors in its opinion of Samruk-Energy's:
• "Important" role for the government, given its strategic position as a leading provider of electricity in Kazakhstan; and
• "Very strong" link with the government, given its 100% ownership of the group through its investment vehicle Samruk-Kazyna, S&P expectation that the government will maintain majority ownership for at least the next two years, the government's involvement in strategic decision-making, and the risk to the sovereign's reputation if Samruk-Energy was to default.
S&P assess the group's SACP at 'b+', based on our view of its "fair" business risk profile and "aggressive" financial risk profile.
The negative outlook reflects our opinion that Samruk-Energy might struggle to maintain financial ratios and performance adequate for the current ratings over the rating horizon.
S&P might lower the ratings if Samruk-Energy demonstrated more aggressive financial policies than we anticipate by proceeding with a higher level of debt-financed investment or acquisition, leading to deterioration in credit metrics. We currently deem a Standard & Poor's-adjusted debt-to-EBITDA ratio of below 4.0x as commensurate with our "aggressive" financial risk profile and SACP of 'b+'. A one-notch downward revision of the group's SACP would result in a one-notch lowering of the long-term rating, provided that the likelihood of extraordinary government support remained unchanged.
S&P could revise the outlook to stable if the group implemented less aggressive financial policies on investments and debt management--including greater clarity on investments to be undertaken--and improved the transparency and certainty of its financial plans and group structure development. In addition, ratings stability would depend on operating and financial results leading to credit metrics remaining commensurate with the current ratings and maintenance of adequate liquidity and maturity profiles.