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

Uzbekistan, Afghanistan eye to achieve twofold growth in trade
Uzbekistan, Afghanistan eye to achieve twofold growth in trade
Investment in tourism transport infrastructure to help dev’t this sector in Turkmenistan - UNWTO
Investment in tourism transport infrastructure to help dev’t this sector in Turkmenistan - UNWTO
Uzbekistan’s Agrobank to fund entrepreneurial activity under Islamic sharia law
Uzbekistan’s Agrobank to fund entrepreneurial activity under Islamic sharia law
Loading Bars
UAE launches satellite Falcon Eye into space
Azerbaijani, Russian FMs hold telephone conversation
Iran ranked among states with high efficiency turbine tech.
Kyrgyz ambassador and Secretary of Senate of Pakistan discuss inter-parliamentary cooperation
Restrictions mulled for New Year celebrations amid COVID-19 outbreak in Turkey
Georgian FM meets with Polish counterpart in Warsaw
Protesters in Yerevan demand Pashinyan's resignation (VIDEO)
Pfizer-BioNTech seeks full marketing approval from UK for COVID-19 vaccine
Kazakhstan eyes attracting latest US technologies in soybeans processing
Kazakhstan's Zhambyl to reduce energy-dependence by attracting investments in renewables
Germany reports record 487 COVID-19 deaths in 24 hours
Belarus reports 1,689 new COVID-19 cases, 139,908 in total
Azerbaijan eyes to use potential of liberated lands for fishery development
UN office announces agenda of special session of General Assembly on COVID-19 initiated by Azerbaijani president
Additional assets brought for Russian peacekeeping contingent delivered - Azerbaijani MoD (PHOTO)
Azerbaijan gains brilliant victory by liberating its lands - Chairman of National Congress of Azerbaijanis of Georgia
Azerbaijani Defense Ministry expresses condolences to Iranian side (PHOTO)
Deposit liabilities of Georgian banking system decreases month-in-month
Phase 3 of OPEC+ could lead to immediate fall in oil prices
Azerbaijan reveals TOP-10 private non-oil exporters
Iranian Energy Exchange announces products to be on sale on December 5
Azerbaijani banks to fully сancel loan debts of martyrs' families
Lending by Georgian commercial banks down
Iran reveals forecast for oil sales for next year
Lari depreciation remains one of leading factors in Georgian debt growth
Georgia decides to ease entry regime for its citizens
Aztelekom LLC announces tender for purchase of electronic spare parts
Bentley hires jets to fly car parts to Britain during Brexit
National Bank of Georgia reveals volume of international reserves
Georgia sees increase in overdue debt
Uzbekistan, Afghanistan eye to achieve twofold growth in trade
Russia discloses volumes of agricultural products supplied to Georgia
Azerbaijan's State Security Service prosecutes Lebanese terrorist mercenary (VIDEO)
Ashgabat City Telephone Network opens tender for audit
EU extends relief measures for COVID-hit loans to March
Turkmenistan expands international cooperation through environmental diplomacy
Iran expands mobile phone imports
Azerbaijani Clean City OJSC signs tender contract
Israel expects $220 million in non-defence trade with Bahrain in 2021
Azerbaijan determines damage inflicted by Armenia on Fuzuli, Jabrayil districts
Turkey to continue providing all kinds of assistance to Azerbaijan - Turkish Minister of National Defense
Iran’s Bahar Azadi gold coin price still rising
Employment increases in Iran's Sistan and Baluchestan Province
Azerbaijan reduces lead exports
Investment in tourism transport infrastructure to help dev’t this sector in Turkmenistan - UNWTO
Georgia expects to start adoption of Oil Stockholding Act soon
Iranian president declares budget revenues for next year
Uzbekistan’s Agrobank to fund entrepreneurial activity under Islamic sharia law
Tightening of quarantine regime may be inevitable - TABIB
Iran expects increase of budget revenues
Georgian CEC to summarize final results of parliamentary elections on December 3
COVID-19 pandemic to displace business class cars from car rental market
Azerbaijan unveils data on local insurers' fees for 10M2020
Building for Turkish-Russian joint monitoring center under construction - Turkish Minister of National Defense
Georgia cultivates significant amount of land to combat marble bugs
Uzbekistan’s Tashkent registers largest number of private enterprises
Tourism can help protect, promote Turkmenistan’s culture - UNWTO
Volume of sales through Azexport portal continues to grow
New electricity facilities to be put into operation in Iran
Japanese agency funds project aimed at improving locust control in Uzbekistan
Georgian oil company trying to contain fuel price rise
Uzbekistan, Germany in talks over partnership with EU
Value of OIC states' import from Turkey shows decline
Azerbaijan's non-oil exports via 'Single Window' system increase
SOCAR Polymer remains export leader in Azerbaijan's private sector
Georgia aims to transpose renewables acquis
Kazakhstan's crude petroleum oil exports to Greece plummet
Construction of Kerki airport passenger terminal being completed in Turkmenistan
Azerbaijan's AzerGold becomes one of export leaders in public sector
Trilateral statement on Karabakh to contribute to long-term peace in region - Kazakhstan's President
Kazakhstan discloses volume of doses to be produced by COVID-19 vaccine plant
ASTS+ trading, clearing system to up productivity of Kazakhstan Stock Exchange
Azerbaijan announces recent COVID-19 death rate
Iran reveals its COVID-19 data for December 2
Azerbaijan presents video footage from Lachin's Garygyshlag village (VIDEO)
Oil prices steady as market awaits output deal
Iran's export to Afghanistan increases
Prices of Kazakh-manufactured diesel fuel down
Azerbaijan's October 2020 non-oil exports slightly rise
Expenses on construction of enterprises in Iran’s Semnan Province climbs
Resources from Southern Gas Corridor to be available via Serbian-Hungarian pipeline
Iran's non-oil export has increases
Iron ore concentrate production of giant Iranian steel companies grows
Events in Belarus, Nagorno-Karabakh region, Kyrgyzstan complicate situation in CSTO area – Putin
Turkmenistan working on development of infrastructure for gas export
Uzbekistan’s State Tax Committee announces tender for IT services
Azerbaijan confirms 3,942 new COVID-19 cases, 2,265 recoveries
Azerbaijan shows video footage from Soyudlu gold deposit of Kalbajar district (VIDEO)
Turkish companies involved in construction of new road to Azerbaijan’s Shusha (Exclusive)
Georgia aims to introduce mobile virtual network operators in 2021
Georgian 2021 budget bill calls for issuing new Eurobonds
Turkmenistan to conclude technical inventory of companies involved in fuel, energy sector
Details of Iran's budget for next year announced
Azerbaijan's oil fund discloses 11M2020 value of revenues from ACG oil-gas fields block
Kazakhstan to develop soil and geobotanical maps for its agriculture lands
SOFAZ's incomes from sale of condensate produced in Shah Deniz remain unchanged
Kazakhstan increases imports from Vietnam despite COVID-19 restrictions
Stability in South Caucasus very important for Turkey - FM
Baku Stock Exchange auctions notes of Central Bank
Azerbaijan, Turkey to establish first Hi-Tech Park in Karabakh
All news