BAKU, Azerbaijan, Nov.19
By Nargiz Sadikhova – Trend:
Fitch Ratings has affirmed Kazakhstan’s KazTransOil's (KTO) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-', the Outlook is Stable, Trend reports with reference to the Fitch’s report.
“The affirmation reflects our view that KTO will retain a strong operational and financial profile. Its business profile is underpinned by its dominant position as a national operator of oil pipelines in the country, as well as its strategic importance to the economy of Kazakhstan. We continue to assess the linkage between KTO its parent JSC National Company KazMunayGas (NC KMG) as strong, leading to KTO's rating being capped at the current level under our Parent and Subsidiary Rating Linkage methodology,” the report said.
Furthermore, ratings Capped by KMG's: KTO's ratings are capped by those of NC KMG.
“KTO has strong operational and strategic ties with its parent. In particular, NC KMG exercises significant influence over KTO's free cash flow (FCF) through dividends, and we expect significant dividend payment to continue, given the company's strong cash-generative profile,” the agency noted.
Strong Business Profile: the agency views KTO's standalone credit profile (SCP) as commensurate with the 'bbb' rating category, which is supported by strong business and financial profiles but constrained by the operating environment.
Sustainable Capex, Credit Metrics: Fitch expects KTO's annual capex to be around 50 billion tenge ($121.1 million) as it has no plans for major expansion projects.
“We expect the company to maintain a conservative financial profile, with no or limited balance- sheet debt,” the report said.
Domestic Tariffs Uncertainty: KTO's domestic transportation tariffs are regulated by Kazakhstan's Committee for Regulation of Natural Monopolies (CRNM).
According to the agency, KTO's ability to raise export and transit tariffs is beneficial for the company's credit profile.
“Broadly Stable Transportation Volumes: We expect KTO's domestic transportation volumes to somewhat increase following the completion of the upgrade of the country's refineries. At the same time, export volumes have decreased and may continue to fall marginally due to depletion at some fields in the central part of Kazakhstan and rising production at Kashagan. However, this trend will not weaken the company's business profile as lower exports should be offset by higher domestic and transit volumes,” the report said.
Strategic Importance to Kazakhstan: KTO dominates the Kazakh oil transportation sector, which is critical for the national economy. As a national operator, KTO holds a monopolistic position in domestic oil transportation.
“KTO is the national operator of oil pipelines in Kazakhstan. Its rating is capped by those of its immediate parent, state-owned NC KMG,” the agency noted.
Developments that may, individually or collectively, lead to Positive Rating Action:
- Positive rating action on NC KMG following a positive rating action on Kazakhstan while links with KTO remain strong.
Developments that may, individually or collectively, lead to Negative Rating Action:
- Negative rating action on NC KMG.
- KTO's aggressive capex or dividend payments exceeding our expectations, resulting in a significant and sustained deterioration of credit metrics, including FFO-adjusted gross leverage above 3x, which could be negative for its SCP.
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