Fitch Affirms KazTransGas at 'BBB-'; Outlook Stable

Fitch Affirms KazTransGas at 'BBB-'; Outlook Stable

Baku, Azerbaijan, Apr.22

By Elena Kosolapova - Trend:

Fitch Ratings has affirmed KazTransGas JSC's (KTG) and its fully-owned subsidiaries', Intergas Central Asia JSC's (ICA) and KazTransGas Aimak JSC's (KTGA), Long-term foreign currency Issuer Default Ratings (IDRs) at 'BBB-'. The outlooks are stable.

The affirmation of KTG and its subsidiaries reflects Fitch's view that KTG's leverage and coverage ratios will return to acceptable levels in 2018, following a temporary weakening in 2016-2017 due to the reduction of PJSC Gazprom's (BBB-/Negative) transit of Central Asian gas to Russia and the devaluation of the tenge in 2015.

Fitch also expects JSC National Company KazMunaiGas (NC KMG, BBB/Stable), KTG's parent, to continue supporting the group when needed.

The agency believes that the 'national operator' status granted to KTG in 2012, the transfer of trunk gas pipelines from the state to ICA, as well as NC KMG's flexible approach to KTG's dividend payouts underline the strong parent-subsidiary links between KTG and NC KMG.

KTG's ratings reflect the company's status as the operator of the Kazakh gas pipeline network, the only transit route for central Asian gas to Russia and Europe, and its role in distribution and sales of natural gas in Kazakhstan domestically and for export.

Fitch views the intra-group links between KTG, ICA and KTGA as strong and hence aligns the ratings of the two subsidiaries with KTG's 'BBB-'. The evidence of strong linkage includes KTG's financial guarantees to KTGA, operational interdependence and a common planning and budgeting process between the companies.

Fitch's key assumptions within its rating case for the issuer include:

- Average exchange rate of 330 tenges for 1 US dollar in 2016-2019.

- 3 billion cubic meters of Central Asian gas transit to Russia annually shipped by ICA from 2016 onward.

- Average tariffs for domestic gas transportation of about 2,000 tenges per 1,000 cubic meters per 100km.

- Average domestic gas prices and domestic sales volumes increasing by low single digits annually between 2016 and 2019.

- Export gas prices to move in line with our Brent price deck of $35 per barrel in 2016; $45 per barrel in 2017, $55 per barrel in 2018 and $65 per barrel in 2019.

- No dividends to NC KMG.

- Annual capital expenditures of 70 billion tenges in 2016, declining to 60 billion tenges in 2017 and to 50 billion tenges in 2018-2019.

Future developments that may, individually or collectively, lead to positive rating action include:

- Positive rating action on NC KMG.

- Evidence of stronger ties between NC KMG and KTG, eg, parental guarantees for a large part of KTG's debt.

Future developments that may, individually or collectively, lead to negative rating action include:

- Negative rating action on NC KMG.

- Evidence of weaker ties between NC KMG and KTG, eg, sustained deterioration of KTG's credit profile with FFO adjusted gross leverage consistently above 4x.

Future developments that may, individually or collectively, lead to positive rating action include:

- Positive rating action on KTG.

- Positive changes in Kazakhstan's regulatory environment, eg, long-term tariffs linked to the asset base.

Future developments that may, individually or collectively, lead to negative rating action include:

- Negative rating action on KTG.

- Weakening ties between KTGA and KTG, eg, if KTG fails to make equity injections into KTGA in the future.

- KTGA's leverage above 5x on a sustained basis, eg, due to an capex increase without a corresponding increase in equity contribution from KTG or the state, or due to lower-than-expected tariffs.

---

Follow the author on Twitter: @E_Kosolapova

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