S&P warns KazTransOil about possible lowering of rating

S&P warns KazTransOil about possible lowering of rating

Baku, Azerbaijan, April 24

By Elena Kosolapova - Trend:

Standard & Poor's Ratings Services has affirmed its 'BB+' long-term corporate credit rating on Kazakhstan-based oil pipeline operator KazTransOil (KTO). The outlook is negative, S&P said April 24.

The affirmation reflects our view that KTO continues to enjoy a "high" likelihood of timely and sufficient extraordinary government support from the government of Kazakhstan as well as our assessment of KTO's stand-alone credit profile (SACP) at 'bb+' . We also continue to see KTO as a "strategically important" subsidiary of the KMG group, the statement said.

KTO's "strategically important" status within the KMG group and its importance to the government of Kazakhstan are underpinned, in our view, by the company's role as the main oil pipeline network operator in the country, transporting more than 53% of oil volumes in the country. The agency considers KTO's role for the government to be "very important" and the link between the company and the government to be "strong," albeit indirect.

"We also assume that extraordinary state support would likely come directly from the government, rather than through the parent, therefore we determine the corporate credit rating on KTO based on its stand-alone credit profile (SACP) plus uplift for potential government support," the statement said.

KTO has a solid market position and limited competition from rail and tanker transport, owing to Kazakhstan's land-locked location, geographic isolation from the Caspian Sea, and the low cost of pipeline transportation.

However, the agency assesses country risk in Kazakhstan as "high," and considers tariff regulation to be opaque and irregularly revised.

The KTO group has a favorable debt structure, in our view, given that all of its outstanding debt is currently at the level of the operating subsidiaries and joint ventures. KTO also enjoys good financial flexibility, thanks to its adequate cash position, flexibility to defer most of its new projects, and available borrowing capacity.

In 2015, the agency expects KTO to continue generating strongly positive free operating cash flow (FOCF) on the back of the tariff increases that took place in 2014.

The agency thinks that KTO's sizable accumulated cash balances cover all existing investment projects and allows for high dividend payouts.

The company's main weaknesses include its potential involvement in new construction projects, which might result in weakened credit metrics and a more aggressive financial risk profile, and its exposure to potential dividend pressure from the parent.

The negative outlook reflects that on the parent, KMG. If the agency lowered the rating on the parent by one notch, that most likely would lead to a similar rating action on KTO.

"We also could lower the rating if KTO were to undertake new investment projects requiring significant external borrowing, resulting in weakened credit measures, or if we were to see substantial unfavorable changes in new contracts with customers," the statement said.

"However, we note that if the local currency sovereign rating on Kazakhstan stays at 'BBB', the rating on KMG remains at 'BB+', and our views of KTO's likelihood of state support and group status are unchanged, we would have to revise the SACP of KTO down as low as 'b+' to trigger a downgrade."

That might stem from a substantial increase in leverage on the back of heavy investments or dividends, taking the financial risk profile to the "aggressive" category (with debt to EBITDA exceeding 4x, for instance), or a significant deterioration in liquidity. The agency currently views these scenarios as very unlikely though.

Indications of weaker support or negative interference from the parent or the state could also put pressure on the rating.

The rating on KTO does not currently benefit from any uplift for government support because KTO's SACP is 'bb+', so any downgrade following such negative interference would be the result of weaker credit metrics.

The agency would be unlikely to revise the outlook on KTO back to stable unless we took a similar action on the parent company.

follow the author on Twitter:@E_Kosolapova

Subscribe to Trend in Google News! Subscribe
Uzbek Statistics Committee publishes leading regions in terms of food production
Uzbek Statistics Committee publishes leading regions in terms of food production
Uzbek Commodity Exchange announces its weekly quotes of commodities for export
Uzbek Commodity Exchange announces its weekly quotes of commodities for export
Uzbekistan reveals main countries in terms of imports for 10M2021
Uzbekistan reveals main countries in terms of imports for 10M2021
Loading Bars
Seven U.N. peacekeepers killed in central Mali explosion
Bayern Munich 3-0 Barcelona: Xavi's side crash out of Champions League
Erdogan praises new economy model, calls for trust in policies
Olaf Scholz elected new German chancellor
Georgian gov't allows Covid-19 booster five months after last shot
Turkey’s COVID-19 numbers decrease despite winter worries
Georgia shares data on most exported goods to Azerbaijan
Iran RIPI among 25 leading patent holders in oil, gas nanotech
Johnson imposes COVID-19 'Plan B' in England to contain Omicron
Azerbaijan-Iran to take steps to increase trade turnover – Iranian ambassador
Pfizer, BioNTech vaccine neutralises Omicron with three shots
Azerbaijan proposes new version of budget rule – minister
Azerbaijan working to prepare Budget Code
Iran is ready to start co-op with Azerbaijan, Russia in synchronization of power grids - minister
Azerbaijan appoints new president of Wrestling Federation
EIB, EBRD assess financing opportunities for Georgian business
Central Bank of Azerbaijan puts into circulation new 20 qepik coin
Turkmenistan launches production of Shir deri branded shoes
Uzbek Statistics Committee publishes leading regions in terms of food production
Georgia seeks funding for underground gas reservoir construction
Uzbek Commodity Exchange announces its weekly quotes of commodities for export
Tactical-Special Exercises held in Azerbaijani Nakhchivan (PHOTO/VIDEO)
Iran and Syria to launch a joint mercantile exchange
Central Bank of Azerbaijan to put into circulation new 20 manat banknote soon (PHOTO)
Iran discloses amount of money provided for purchase of agricultural machinery
Russia’s Astrakhan Business Center in Baku to attract businessmen, humanitarian reps - governor
Oil prices expected to strengthen again in 2023
Iran`s Khodro, Saipa automakers receive green light to raise prices on cars
Azerbaijan shares predictions on GDP growth rates for 2022-2026
Iran's Bahar Azadi gold coin prices dip
Indian Oil Corporation renews deal to buy up to 2 MT of oil from Russia's Rosneft
Azerbaijan boosts chemical exports for 10M2021
Foreign Secretary, Bangladesh Foreign Minister discuss COVID-19 cooperation
Number of passenger planes received by Iran’s Gorgan International Airport up
Baku State University opens tender for security services
Indian DRDO carries out successful test firing of surface-to-air missile
Turkey ready to mediate to reduce tension between Russia, Ukraine – President Erdogan
Kazakhstan shares forecast on oil production volume by 2030
Iran produces 5 million doses of domestic Noora COVID-19 vaccine
Bahrain parliament approves value-added tax increase to 10%
Challenge for OPEC+ beyond 2022 may shift towards managing upside risks
Israel budget deficit falls to 4.6% of GDP yr/yr in November
Gas withdrawal from European UGS 19% above average in December — Gazprom
India develops AESA radar to make IAF fighters more lethal
Iran`s National Development Fund voices readiness to back mega projects
Iran's trade with China declining
Iran seeks to boost trade with Syria through private sector
Pfizer, BioNTech vaccine neutralises Omicron with three shots
Red Cross to build regional logistics hub in Georgia
Kazakhstan reports increase in purchase prices for new housing
SOCAR Petroleum among largest taxpayers in Ukrainian fuel market
Azerbaijan launches construction of tunnels on Horadiz-Jabrayil-Zangilan-Aghband highway (PHOTO)
Azerbaijan, Iran hold discussions on development of co-op in oil-gas sector
Armenian troops shoot at Azerbaijani military positions in Kalbajar
Azerbaijan's activities in energy sector - commendable, says Iranian minister
Azerbaijan shares data on number of vaccinated citizens
Azerbaijan confirms 1,210 more COVID-19 cases, 1,853 recoveries
US-led global release of strategic petroleum reserves may accelerate oversupply
Initial acquaintance with minefields maps provided by Armenia creates impression of inaccuracy – ANAMA
Main goal of Google Pay - to ease payment possibility for users, says head of operations strategy
Azerbaijan shares data on oil export to Switzerland for 10M2021
Azerbaijan discloses oil exports to Greece over 10M2021
bp says delivery of final major equipment packages for ACE complete
bp talks latest progress in ACE platform construction
Georgia shows positive growth in tourism revenue recovery – TBC Capital
Russia begins sea trials of 'Peter the Great' cruise ship - Astrakhan governor
Iran sees increase in volume of cargo loaded/unloaded in Genaveh port
Azericard looks to expand innovative payment tools in Azerbaijan
Uzbekistan reveals main countries in terms of imports for 10M2021
Several wheat varieties sown in Azerbaijan's liberated lands (PHOTO)
Central Bank of Azerbaijan plans to develop standards to support open banking technologies in 2022
Azerbaijan, Russia’s Astrakhan to co-op in dev’t of North-South transport corridor – Astrakhan governor
Central Bank of Azerbaijan unveils five main directions of digital payment development strategy
S&P Global Ratings announces Uzbek Ravnaq-bank's credit rating
China's Venus Medtech buys Israeli co Cardiovalve
Central Bank of Azerbaijan to develop document on conceptual approach to digital currency creation in 2022
Uzbekistan names leading countries in terms of exports in 10M2021
National Bank of Georgia reduces mortgage loans term
Iran reveals COVID-19 data for December 8
Tesla sold 52,859 China-made vehicles in November
Azerbaijan developing new training programs for qualified workers – minister
UAE to allow establishment of acquisition companies
MasterCard eyes expanding non-cash payment opportunities for public transport in Azerbaijani regions
Light Industry Development Project in Georgia getting support from USAID
Azerbaijani Ombudsman talks about measures on Armenia's execution of decision of Int'l Court of Justice
IRICA shares data on Iran’s steel, iron products export
Azerbaijan, Iran discuss issue on construction of bridge and pedestrian crossing over Astarachay River
Social Democrat Olaf Scholz elected as German chancellor
Iran to launch new power units for TPPs
Lithuanian BS/2 to expand its business in Azerbaijan
Eurasian petroleum production to continue positive trend by 2022
Cargo transportation via Iran's Urmia International Airport increases
Kazakhstan, Kyrgyzstan to build industrial trade and logistics complex on border
Europe to see increase in petroleum, other liquids output
MasterCard implements projects to expand contactless, non-cash payments in Azerbaijan
Azerbaijan researching to create digital manat
Russian S7 Airlines launches regular flights to Uzbekistan
Azerbaijan assigned social payment to 20,000 families of martyrs from early 2021 – minister
National Bank of Georgia tightens monetary policy rate
Personal exhibition of Brazilian street artist to open at Azerbaijan's Heydar Aliyev Center
All news