KazTransGas investment to increase its financial risks - S&P

KazTransGas investment to increase its financial risks - S&P

Baku, Azerbaijan, Apr. 24

By Elena Kosolapova - Trend:

Standard & Poor's Ratings Services has affirmed its 'BB+' long-term corporate credit ratings on Kazakh gas utility company KazTransGas (KTG) and its 100 percent owned gas pipeline operator Intergas Central Asia JSC (ICA), said the message of the rating agency Apr.24.

The outlook is negative.

The agency has also affirmed the 'BB+' rating on the senior unsecured debt of ICA.

"The rating action reflects our view that KTG has a stand-alone credit profile (SACP) of 'bb', has a moderately strategic status in the KazMunayGas (KMG) group, and enjoys a "moderately high" likelihood of timely and sufficient extraordinary government support from the government of Kazakhstan," said the message.

S&P assumes, however, that in case of financial stress, any extraordinary support to KTG would likely come directly from the government. Therefore, the company's corporate credit rating on KTG on its SACP plus uplift for potential government support, capped at the rating level of the parent company.

S&P equalizes the ratings on ICA with those on KTG, reflecting the overall creditworthiness of the KTG group. The consolidated approach reflects the companies' close integration, KTG's 100 percent ownership of ICA and other major subsidiaries, financial guarantees on much of the group's debt issued by ICA and KTG, large intragroup cash flows, and an absence of effective subsidiary ring fencing.

The agency's view of KTG's SACP as 'bb' on its "fair" business risk profile, "intermediate" financial risk profile, and "negative" financial policy.

KTG's "fair" business risk profile is supported by the stable and regulated nature of the gas transportation business and ship-or-pay terms until the end of 2015 in the gas transportation contract with Russian energy major Gazprom.

It is constrained by the company's exposure to high country risk, heavy dependence on Gazprom in its gas transportation and sales activities, an aged asset base, potential competition from alternative gas export pipelines transporting Central Asian gas, and untransparent retail gas tariff regulation in Kazakhstan.

KTG's financial risk profile is "intermediate," in the company's view, supported by moderate debt levels and resulting in the ratio of debt to EBITDA not higher than 3x and funds from operations (FFO) to debt of at least 30 percent in our base-case projections for 2015-2016. It is constrained by continued ambitious planned investments in gas transmission and distribution, rising cash flow volatility, and exposure to foreign currency risk.

However, the foreign currency risk is mitigated to some extent because much of KTG's revenues are US dollar denominated. The agency assigns a "negative" financial policy modifier because it thinks the financial policy framework allows KTG to take a more leveraged position than it currently expects, primarily on the back of higher investment needs.

The negative outlook mirrors that on KTG's immediate parent, KMG. In accordance with the company's group rating methodology, S&P currently caps the rating on KTG by the rating on KMG, so a negative rating action on the parent would lead to a similar rating action on KTG, all else being equal.

S&P thinks pressure on KTG's credit profile also could result from a more aggressive financial profile than it currently anticipates. That would include weakened credit ratios (notably debt to EBITDA rising above 3x) due to any unexpected financial underperformance, extensive reliance on short-term funding, or KTG's increased capital expenditures requiring significant external borrowing and leading to leverage above the agency's expectations. For instance, this might occur if KTG increased capital expenditures because of a greater need to invest in gas distribution assets or start new large investment projects. The ratings could also come under pressure as a result of any indications of negative interference from KMG, including, but not limited to, inducement to pay excessive dividends.

"If we revised down our assessment of KTG's SACP by one notch, it would lead us to lower the long-term rating to 'BB', provided that the sovereign long-term local currency rating and the likelihood of extraordinary financial government support remained the same," said the agency.

"If we saw signs of weakening state support, we might consider revising down the likelihood of extraordinary government support for KTG," according to the S&P. "Under our criteria for GREs, we would have to revise the likelihood of extraordinary government support down to "moderate" from the current "moderately high" to result in a downgrade of KTG. This might be a result of increased substantial privatization risk, negative interference track record, or reshuffling of government priorities in its support initiatives."

Ratings upside is currently limited by the ratings on the parent. The agency could revise the outlook to stable only if it revises the outlook on KMG to stable.

---

Follow the author on Twitter: @E_Kosolapova

Iran, Qatar sign MoU to cooperate on economy
Iran, Qatar sign MoU to cooperate on economy
President Rouhani: Iran to be able to mass produce coronavirus vaccine soon
President Rouhani: Iran to be able to mass produce coronavirus vaccine soon
Parliament's plan to increase subsides - costly for Iranian government
Parliament's plan to increase subsides - costly for Iranian government
Loading Bars
Latest
Energy, transport sectors – main area of Romanian interest in Turkmenistan
1 dead, 2 missing after workshop collapse in SW China city
Import of Turkish clothes by Uzbekistan drops sharply
75 more coronavirus patients die in Moscow in past day — crisis center
Number of COVID-2019 cases across globe up by over 463,000 in past day — WHO
Israel reports 798 new COVID-19 cases, 330,796 in total
Units of the Azerbaijan Army entered the Kalbajar region
Pennsylvania certifies election results for Biden
Iran, Qatar sign MoU to cooperate on economy
Kalbajar region of Azerbaijan being liberated from Armenian occupation today
China, Japan eye closer cooperation amid COVID-19 pandemic
Construction of the TAPI gas pipeline in Afghanistan territory will continue next year
ICESCO SecGen sends letter to President Aliyev
Azerbaijani, Russian presidents hold phone talks
Urban transformation back on track for ‘abandoned’ Istanbul neighborhood
“Scorched earth” strategy of Armenians leaving Azerbaijani Kalbajar region did not escape EC attention - report
President Rouhani: Iran to be able to mass produce coronavirus vaccine soon
Turkmenistan is convinced of the need to attract political-diplomatic tools to achieve peace and prosperity in Afghanistan
Georgian banks see increase in interest income
Azerbaijan’s revenues from export of hazelnuts down
Azerbaijan’s import of plastics and plastic products drops
Turkmenistan will continue to cooperate with Afghanistan on security issues
Nursing homes will be first to get COVID-19 vaccine in Spain
Troops from Azerbaijan's Nakhchivan who took part in Karabakh conflict, return home (PHOTO)
Speaker of Azerbaijani parliament takes part in int’l conference initiated by Turkish parliament, PACE (PHOTO)
Any result that acceptable for Azerbaijan - acceptable for Turkey too, FM says
Volume of paid services in Azerbaijan’s Nakhchivan Autonomous Republic down
Azerbaijan shows aerial footage of Shusha city (VIDEO)
Kazakhstan eyeing to develop information system for accounting of oil and gas condensate
Anglo Asian Mining's production of precious metals in Azerbaijan may decrease
Uzbekistan eyes to increase share of renewable energy sources by 2030
Airbus CEO says industry might need until 2025 to reach pre-crisis levels
Parliament's plan to increase subsides - costly for Iranian government
Ukrainian companies enter Uzbek commodity exchange
National Bank of Georgia reveals data on losses of commercial banks
Import of sugar and confectionery by Azerbaijan down
Demand for Turkish electrical goods on Kazakh market grows in 10M2020
Azerbaijan confirms 1,259 more COVID-19 recoveries
Bahar Azadi gold coin price again falling in Iran
Azerbaijan discloses data on destroyed houses in liberated Fuzuli district
Baku Media Center prepares video covering Armenian vandalism on occupied territories of Azerbaijan (VIDEO)
Russian president hopes for participation of int’l organizations in Karabakh conflict settlement
Power abuse by major states prevents resolving conflicts - Russian FM
Uzbek-Korean JV to buy electrical products via tender
Turkmenistan offers business opportunities for Switzerland in number of fields
North-South Corridor - on Iran's agenda - Minister of Roads and Urban Development of Iran
Turkish, Russian military personnel to jointly patrol in Nagorno-Karabakh - Turkish MoD
Azerbaijan shows footage from Abdal, Gulabli villages of Aghdam district (VIDEO)
Egyptian air operator enters Uzbek market
Uzbekistan to introduce changes to electricity payments in 2021
Iran assigns more funds to complete unfinished projects
Turkmenistan's Turkmennebit opens tender for purchase of equipment
Azerbaijan’s startup sector expects big investments
Iran's ten-month import of steel from Turkey drops
Tesla set to breach $500 billion in market value
State budget for 2021-2023 approved in Kazakhstan following amendments introduction
Kazakhstan's bitumen output exceeds 2020 plan as maintenance works held country-wide
Port of Baku reveals total 10M2020 cargo shipments
New railway vehicles put into operation in Iran
Iran`s Zarif to visit Moscow and Baku despite postponement
Kazakhstan looking to double renewables share in electricity production
Iran continues to cut reliance on oil revenue
Volume of container transshipment between Kazakh, Azerbaijani ports almost triples
LUKOIL refusing plans to construct giant petrochemical complexes
Iran, Qatar sign an extensive Memorandum of Understanding to facilitate cooperation
Switzerland names main trade statistics with Turkmenistan
Dry cargo transshipments through Baku port grow in 10M2020
LUKOIL says reducing oil exports to Europe is inevitable
Georgia receives new buses of modern standards
Georgian hazelnuts exports up
Georgia sees increase in export of tangerines
Ryanair wants to be 'at front of queue' for new 737 MAX order
Azercell’s Mobile Eye Clinic joins campaign for IDPs initiated by the UN (PHOTO)
El Al to launch Tel Aviv - Dubai flights next month
Kazakhstan’s third-quarter economic performance benefits from recovery of oil prices
Azerbaijan informs UNESCO, ISESCO about results of initial monitorings on liberated areas
Turkmenistan’s private sector participates in dev't of poultry farming
Iran discloses plan on creation of new jobs in Yazd Province
Destroyed Armenian positions firing at Azerbaijani army during recent hostilities shown (PHOTOS)
Central Bank of Azerbaijan discloses data from foreign exchange auction
CBI announces Iran's external debt
Azerbaijan starts to grow bananas - Azerbaijani Ministry of Agriculture
Azerbaijani servicemen help Armenians to move belongings from villages of Aghdam district (VIDEO)
PAYSIS expanding range of innovative services in Azerbaijan
Iran reveals COVID-19 data for November 24
E-Space reveals volume of EVs registered in Georgia
Azerbaijan discloses volume of tobacco harvested this season
Russian insurance agency to fund Uzbekistan’s hydrocarbon raw materials production
Iran to boost apple production
Georgia reveals volume of exported apples
Income of Chinese contractor of infrastructural projects in Georgia up
We were able to get necessary international support in key issue for us - President Aliyev
LUKOIL says $40/bbl is worst case scenario for oil prices
If we had not created necessary legal framework for resolving conflict, we could have faced problems today - President Aliyev
Iran registers order at COVAX to buy vaccine
Air traffic reduces in Georgia - EUROCONTROL
Second asphalt layer of Ashgabat-Turkmenabat highway being laid
Russian Export Center discloses value of support for exports to Azerbaijan
Azerbaijan's import of limestone, cement down in 10M2020
Aghdam operation was part of our plans - President Aliyev
All news