External funding required for National Company Kazakhstan Engineering's investment plans

External funding required for National Company Kazakhstan Engineering's investment plans

Astana, Kazakhstan, Sept. 22

By Daniyar Mukhtarov - Trend:

Fitch Ratings has affirmed JSC National Company Kazakhstan Engineering's (KE) Long-term foreign currency and local currency Issuer Default Ratings (IDRs) at 'BBB-' and 'BBB', respectively, with Stable Outlooks.

Fitch has also affirmed the foreign and local currency senior unsecured ratings at 'BBB-' and 'BBB' respectively and the Short-term foreign currency IDR at 'F3'.

KE's ratings are based on Fitch's Parent Subsidiary Linkage methodology and are notched down two notches from the rating of its ultimate 100% shareholder, the Republic of Kazakhstan (foreign currency IDR BBB+/Stable, local currency IDR A-/Stable). Therefore, any indication or change in Fitch's view that state support will weaken could have a negative effect on the ratings. In particular, any sign that expected capital injections from the state will be delayed or diminished could be negative for the ratings, the statement says.

Fitch deems KE's linkage with its parent as moderate to strong due to the state control, strategic importance of the company to the government's ambition to expand the country's industrial base and diversify the national economy as well as the tangible financial support from the state that has already been exhibited and pledged. The two-notch differential reflects the lack of debt guarantees provided by the state and the slightly lower priority KE would likely receive compared with key natural resources, utilities or infrastructure companies, whose ratings are notched down by one notch from the sovereign, the statement says.

Fitch believes that on a standalone basis, KE's rating would likely be at the mid to high end of the 'B' category, reflecting its weak business profile, negative free cash flow (FCF), moderately high leverage and adequate liquidity.

KE's business profile is characterised by its small size, limited product range, lack of long-term high-tech development achievement and little customer diversification, all of which cap the company's standalone rating in the 'B' category.

Nevertheless, we acknowledge the growth that the group is likely to experience in the coming years stemming from the Kazakhstan government's ambitious plans for the entity as the focal point of the nation's modernisation, industrialisation and export drive. Coupled with the technological know-how the company is acquiring from various joint venture partners, the business profile is likely to visibly improve within the rating horizon, the statement says.

The 2013 financial results were materially worse than expected by Fitch due to delays concerning certain supplies at the company's defence division. As a result, revenue and earnings were significantly lower than expected, whilst large working capital built up at year-end meant that FCF was almost negative KZT7bn. Gross and net leverage at end-2013 were 16.9x and 5.3x, respectively, much worse than the 3.6x and 0.2x expected by Fitch.

Fitch expects the effects of the 2013 delays will be at least partly reversed in 2014 and the financial results will broadly return to the previously expected levels. The funds from operation (FFO) margin is expected to be at around high single digits whilst gross and net FFO adjusted leverage are expected to be around 5.7x and 1x, respectively, at end-2014. The majority of debt (a USD200m bond) matures in 2016 and is expected to be refinanced. Debt levels are expected to peak in 2014, as future capacity expansion that the group is undertaking is expected to be financed via equity injections as well as the company's own operating cash. At end-2015, Fitch expects that gross and net leverage will improve to below 3.5x and 1x, respectively.

To date, the company's margins have been moderate to weak, but Fitch expects them to improve in the near term on the back of greater cost discipline, efficiency improvements and state assistance. The group's FCF is likely to be negative in the coming two to three years as a result of high capex needs and working capital outflows. The former relates to the capacity expansion the group is undertaking, while the latter is linked to the overall projected growth in the business, the statement says

The company had around KZT31bn of cash at end-2013, which was more than sufficient to cover short-term maturities (primarily consisting of leases). Nevertheless, the group's large investment needs mean that FCF is likely to be negative in the short to medium term and external funding will be necessary to finance the projected capex. To this end, KE is reliant upon the equity injections which have been pledged by the government, without which the growth plans would need to be materially scaled back.

The Stable Outlook on the Long-Term IDR reflects that on the Long-Term foreign currency IDR of the Republic of Kazakhstan.

A weakening of support, such as a reduction in the state's shareholding in KE, a waning commitment to and support for the company's programmes, or a change in the treatment by the state that KE receives relative to other state-owned companies, could lead to a widening of the rating gap between Kazakhstan and KE, the statement says.

Volume of deposits up in Georgia
Volume of deposits up in Georgia
September occupancies up in Georgian regional hotels
September occupancies up in Georgian regional hotels
Rates of dollarization on loans and deposits up in Georgia
Rates of dollarization on loans and deposits up in Georgia
Loading Bars
Azerbaijan’s Bakcell preparing discounts for teachers within project
Kazakhstan's grain export volume revealed
Amazon hiring 150 employees in Israel
Baku Higher Oil School on top of grade ranking among universities in Azerbaijan
Mortgage lending via state line in Azerbaijan up
Russia leading exporter of polymer products to Turkmenistan
Volume of deposits up in Georgia
September occupancies up in Georgian regional hotels
Kazakhstan, Azerbaijan strengthening co-op in medical tourism
Rates of dollarization on loans and deposits up in Georgia
Volume of deposits in Azerbaijan grows
Russia increases exports of frozen vegetables to Turkmenistan
Bakcell talks about network congestion and secure internet
Azerbaijani banks increase lending to clients
Iranian government is modernizing agriculture in Tehran Province
Italy lowers import of Turkish cars
Loans and deposits, expressed as percentage of GDP, increase in Georgia
Netherlands increase export volume to Kazakhstan year-on-year
Georgian hazelnuts exports up
Azerbaijan's Anglo Asian Mining reveals 1H2020 income
Several industrial projects to be implemented in Kazakhstan's Almaty
Azerbaijan's Azexport portal to place insurance services
Sooner Armenia withdraws its armed forces from the occupied territories of Azerbaijan, sooner the conflict will be resolved (PHOTO)
Moscow reports 1,560 new coronavirus cases, highest since June 12
Azerbaijani schoolchildren perform successfully at 32nd International Olympiad in Informatics (PHOTO)
Azerbaijan confirms 137 more COVID-19 recoveries
ADB: Developed capital markets enhance financial stability in Azerbaijan
Covid-19 daily infections swell 12% to new record
Energy efficiency to be increased at Uzbek manufacturing enterprises
Shell books tanker to load crude at Libya's Zueitina oil port
Turkmenistan’s Oil Refineries extends tender for gasoline purchase
Kazakhstan's QazTech Ventures to fund Uzbek startups
Gas exports from Azerbaijan to Turkey significantly up
VTB Bank, Entrepreneurship Development Fund of Azerbaijan issuing loans to businesses
Azerbaijani FM receives ambassador of Greece
Vietnam interested in import of Azerbaijani products
EU working with Georgian partners to strengthen cybersecurity in country
Azerbaijani ministry talks introduction of contactless payment in public transport in districts
Central Bank of Azerbaijan to hold deposit auction
Azerbaijan discloses data on tobacco exports for 2019
BP: Oil demand to remain central part of energy system for next 10–15 years
Azerbaijani MP: Armenia resettling terrorists to Nagorno-Karabakh region, facts prove ASALA's presence
Apple says has always abided by Irish law as EU appeals court ruling
Precious metal prices in Azerbaijan up again after decline
Iran assigns housing units to low income
Money supply increased in Uzbekistan
Uzbekistan to export fuel diesel to Pakistan
Georgia reveals volume of premiums attracted by insurance companies
UN highlights Azerbaijani president’s speech at 75th session of UN General Assembly
Kazakhstan's largest oil pipeline company to buy power stations via tender
LNG demand to double over next 20 years
Volume of gas production by Turkmenistan’s Lebapgazchykarysh revealed
Expert talks putting Azerbaijan's domestic tourism back on its feet
Deputy FM: Rejecting proposals to resolve conflict, Armenian leadership makes negotiations meaningless
Road in border village of Azerbaijan’s Gazakh district being overhauled (PHOTO)
Israeli politician: We find Azerbaijan a good friend of Israel
Around 6,000 people internationally wanted by Russia
Buffett-following investment trust to list in London
EU Special Representative: EU has strong interest in peace, stability in South Caucasus
Georgia reports 265 new cases of coronavirus
Instagram fixes breach found by Check Point
US’ share in Azerbaijan's total imports grows
FAO provides strategic support for Uzbek Agriculture Ministry
Conference of the People’s Council of Turkmenistan was held at the high organizational level
Italian geopolitical analyst: Mechanism needed for implementation of UNSC resolutions on Nagorno-Karabakh conflict
Turkmenistan to expand areas for growing crops
Azerbaijani oil prices down
Georgia, Azerbaijan united by energy and transport projects of international importance
President Ilham Aliyev receives EU Special Representative (PHOTO)
Chairman Israel Empowerment Lobby: Azerbaijan tolerates all religions
Electronic Water Portal launched in Azerbaijan (PHOTO)
Agro Service: Azerbaijan has no shortage in fertilizers
Сoordinated fake news attacks on Azerbaijan debunked (PHOTO)
Georgia takes part in high-level Open Government Summit together with world leaders
Belarus raises goods export to Azerbaijan
Georgia hosts Cyber ​​Security Forum
Demand for Turkish clothing in Georgian market declines
Turkmenistan working to improve transport macrostructure
Azerbaijani Ambassador presents his credentials to President of Mexico
Georgia to start producing anti-hail nets for orchards
German export expectations hit highest level since October 2018
President Ilham Aliyev: Non-fulfillment of Security Council resolutions undermines prestige of UN
Irish foreign minster says EU-UK trade deal breakthrough possible
Overhaul of Azerbaijani 'President Heydar Aliyev' tanker completed
Azerbaijani president: Aim pursued by Armenia to maintain current status-quo of occupation, to annex occupied territories
Azerbaijani president: We have credible information about presence of Armenian ASALA terror organization on occupied territories
President Ilham Aliyev: Illegal presence of Armenian armed forces in occupied lands of Azerbaijan remains major threat to regional peace, security
Import of Turkish-made chemicals by Turkmenistan declines
Vaccine against COVID-19 could give boost to oil prices
Turkmenistan to provide additional benefits to healthcare workers
Moscow authorities recommend people over 65 stay home due to increased COVID-19 incidence
UAE, Israeli cyber chiefs discuss joining forces to combat common threats
Singapore August manufacturing surges 13.7% year-on-year, beats forecasts
Armenia violates ceasefire with Azerbaijan 61 times
Azerbaijani currency rates for Sept. 25
Pakistani expert: Armenia - country where Islamophobia perceived as state policy
Turkmenistan to increase volume of credit funds for dev’t of industrial sectors
IAI buys 50% of tactical drone co BlueBird
Uzbekistan reveals its COVID-19 data for September 25
Ankara-Baku-Ankara flights to be resumed soon
All news