BAKU, Azerbaijan, Apr.27
By Nargiz Sadikhova - Trend:
Fitch Ratings agency has affirmed Kazakhstan Temir Zholy's (Kazakhstan Railways, KTZ) Long-Term Issuer Default Rating (IDR) at 'BBB-' with a stable outlook, Trend reports with reference to the Fitch report.
KTZ's senior unsecured debt ratings have also been affirmed at 'BBB-'.
“The affirmation reflects our assessment of KTZ's strength of linkage with Kazakhstan under Fitch's Government-Related Entities (GRE) Criteria, unchanged since our last rating action in April 2019. This, combined with the company's standalone credit profile (SCP) assessment at 'b+', leads us to maintain a single-notch rating differential between KTZ's and the sovereign's IDRs,” the report said.
The report also said that while KTZ's most recently available data may not have indicated performance impairment, material changes in revenue and cost profiles are occurring across the sector and likely to worsen in the coming months as economic activity suffers and government restrictions are maintained or broadened.
"Status, Ownership and Control are affirmed at ‘Very Strong’ as KTZ carries significant importance for the state as a monopolistic provider of access to the national railway and other transport infrastructure, locomotive traction service, and freight and passenger transportation. Support Record and Expectations is affirmed as ‘Strong’ since KTZ benefits from sustainable state support in the form of subsidies and debt and equity funding," Fitch said.
The agency said that it expects financial support from the state to KTZ to continue in the medium term.
Socio-Political Implications of Default is affirmed as ‘Strong’ which is supported by Fitch's view that a KTZ default would temporarily endanger the continued provision of essential economic activity.
“KTZ accounted for over 40 percent of the national transportation industry in 2015-2019, and its default could lead to significant socio-political repercussions for the Kazakhstani state. Any temporary failures in or disruptions to KTZ operations could hinder economic activities, disrupt supply chains and lead to long-term negative economic implications and hamper the country's development,” the report said.
The report also said that KTZ remains exposed to risks of negative commodity markets dynamics, foreign currency-market fluctuations, and macro-economic and geo-political developments in neighboring countries, primarily Russia and China, which affects Fitch’s demand assessment.
Developments that may, individually or collectively, lead to positive rating action/upgrade:
- An upgrade of Kazakhstan's sovereign rating
- Net debt/EBITDA below 2x on a sustained basis, leading to a stronger financial profile and a reassessment of the SCP towards 'bb-'.
Developments that may, individually or collectively, lead to negative rating action/downgrade:
- A downgrade of Kazakhstan's sovereign rating.
- Dilution of linkage with the sovereign resulting in the ratings being further notched down from the sovereign's.
- Downward reassessment of the company's SCP, resulting from deterioration of financial profile with net debt/EBITDA sustainably above 9x as per our rating case.
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