Fitch affirms KazMunaiGaz national company at ‘BBB-’; Outlook Positive

Oil&Gas Materials 29 June 2012 12:40 (UTC +04:00)
Fitch Ratings has affirmed Kazakhstan-based KazMunaiGaz National Company’s (NC KMG) Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB-’ and ‘BBB’ respectively.
Fitch affirms KazMunaiGaz national company at ‘BBB-’; Outlook Positive

Azerbaijan, Baku, June 29 / Trend /

Fitch Ratings has affirmed Kazakhstan-based KazMunaiGaz National Company's (NC KMG) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-' and 'BBB' respectively. Fitch has additionally affirmed NC KMG's foreign and local currency senior unsecured ratings at 'BBB-' and 'BBB' respectively and Short-term foreign currency IDR at 'F3'. The Outlooks for the Long-term IDRs are Positive, the agency said today.

Although NC KMG continues to benefit from relatively strong links with the Kazakh state, a full rating alignment with the sovereign is not warranted without robust legal ties (for example, explicit guarantees) under Fitch's Parent and Subsidiary Rating Linkage methodology. Consequently, NC KMG's ratings are notched down one notch from the sovereign foreign and local currency ratings ('BBB'/Positive/'F3', 'BBB+'/Positive). Fitch views the group's standalone operational and credit profile to be congruent with the low 'BB' rating category.

Fitch considers the development and output expansion at the main hydrocarbons projects in Kazakhstan, in which NC KMG owns equity stakes, as a pre-requisite for the group's oil and gas production growth in the short-to-medium term. At the same time, the primary goal of its majority-owned upstream asset (JSC KazMunaiGas Exploration Production) is to arrest natural production decline and maintain stable oil output levels.

Fitch expects cash dividends from affiliates to remain the main driver of the group's operating cash flow generation over 2012-13. The agency anticipates that the company will continue to receive a stable dividend flow from Tengizchevroil (series A notes rated 'BBB-'/Positive), the largest contributor to its dividends from affiliates, despite the expansion plans of the latter. The upstream segment is likely to retain its leading position in terms of contribution to the group's cash flow and EBITDA.

NC KMG plans to implement an ambitious capex programme of USD16.9bn over 2012-16, almost half of which is likely to be debt funded. As a result, Fitch forecasts that the group's debt will further rise in 2012-13 and funds from operations (FFO) adjusted leverage will remain well above 3x in 2012-13 based on Fitch's oil price deck of USD95/bbl in 2012 and USD85/bbl in 2013. The company compares unfavourably with its similarly rated oil and gas peers based on its coverage and leverage ratios. The agency also anticipates that the group will continue to generate negative free cash flow in 2012-13.

Although Fitch believes that the accessibility of the company's cash position held at domestic banks has improved, the group continues to be heavily reliant on external borrowings for debt refinancing and capex funding. Therefore, Fitch does not view NC KMG's ample liquidity position as a factor fully offsetting its high indebtedness. Hence the agency continues to focus on gross leverage-related metrics rather than net figures in its analysis.

Its short-term debt of KZT282.9bn (USD1.9bn) at end-2011 was not onerous compared to its cash position of KZT997.3bn (USD6.7bn), assuming its full accessibility. The group will face spikes in its debt maturities in 2013 and 2015, which Fitch expects to be largely refinanced.

NC KMG's ratings will be affected by a sovereign rating action. An upgrade of the sovereign ratings would be replicated by NC KMG's ratings with a one notch differential. If the Outlooks on the sovereign ratings are revised to Stable, the Outlooks on NC KMG's Long-term IDRs will also be stabilised. Evidence of weakening state support would be negative for the ratings.

Aggressive acquisitions and/or an investment programme resulting in further material deterioration of the standalone credit metrics could also be negative for the ratings.