Baku, Azerbaijan, Sept. 10
By Elena Kosolapova – Trend: The international rating agency Fitch Ratings has affirmed Kazakhstan-based JSC KazTransOil's (KTO) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook, the rating agency reported.
“The ratings reflect KTO's strong operational and financial profile, which we expect the company to maintain at least over the medium term, as well as its strategic importance to the economy of Kazakhstan (BBB/Stable),” Fitch said.
KTO dominates the Kazakh oil transportation sector that is critical for the national economy. As a national operator, KTO holds a quasi-monopolistic position in domestic oil transportation. In 2015 it transported 51 percent of crude produced in Kazakhstan, excluding the volumes of its two JVs with China National Petroleum Corporation (CNPC, A+/Stable), which operates the major part of the 20 million tons per annum (mtpa) capacity Kazakhstan-China oil pipeline.
KTO's ratings are capped by NC KMG's because the parent exercises significant influence over KTO's free cash flow (FCF) through dividends, which NC KMG uses to service its large standalone unadjusted debt of 3.1 trillion ($9.3 billion) at end-June 2016. KTO's dividend payout ratio for 2015 was 114 percent and ranged from 66 percent to 231 percent in 2011-2015. In addition, in 2015 KTO provided a 20 billion interest-free loan to NC KMG, which was repaid in June 2016.
The agency views KTO's operational profile as commeasure with the 'BBB' rating category, limited by the regulatory environment and asset concentration in a single country. Fitch expects that in the event of financial stress, the state would support KTO, either directly through equity contributions, loans from state-owned banks and funds, or indirectly through higher transportation tariffs.
In 2015, KTO's crude oil turnover (excluding JVs) edged up 3 percent yoy to 37 billion tons-kilometres despite a 1.6 percent drop in Kazakhstan's oil production. Fitch expects that KTO's volumes and turnover will decline gradually over the medium term, reflecting falling production at Kazakhstan's principal brownfields. Additionally, the share of KTO's deliveries to domestic customers, mainly refineries, is likely to increase after the completion of refinery upgrades expected in 2017, driving down its EBITDA margins. Fitch believes, KTO may compensate the income shortfall from lower domestic tariffs by increasing export tariffs.
Positive rating action on NC KMG following a positive rating action on Kazakhstan may lead to positive rating action on KazTransOil.
Negative rating action on NC KMG due to weakening support from the state to NC KMG, negative rating action on the sovereign or NC KMG's failure to improve standalone credit metrics or KTO's aggressive capex or dividend payments exceeding Fitch’s expectations resulting in a significant and sustained deterioration of its credit metrics, including FFO adjusted gross leverage above 3x may, individually or collectively, lead to negative rating action on KazTransOil.