Azerbaijan, Baku, August 7 / Trend /
Fitch Ratings has assigned JSC National Company Kazakhstan Engineering (KE) Long-term foreign currency and local currency Issuer Default Ratings (IDRs) of 'BBB-' and 'BBB', respectively. Fitch has also assigned foreign and local currency senior unsecured ratings of 'BBB-' and 'BBB' respectively and a Short-term foreign currency IDR at 'F3'. The Outlooks on the Long-term IDRs are Stable, Fitch Ratings said today.
Fitch deems the linkage moderate to strong due to the state control, strategic importance of the company to the government's ambition to expand the country's industrial base and diversify the national economy as well as the tangible financial support from the state already exhibited and pledged. The two notch differential reflects the lack of debt guarantees provided by the state and the slightly lower priority KE would likely receive compared to key natural resources, utilities or infrastructure companies, whose ratings are notched down by one notch from the sovereign.
Fitch believes that on a standalone basis, KE's rating would likely be at the high end of the 'B' category, reflecting its weak business profile, negative free cash flow (FCF), moderately high leverage and adequate liquidity.
KE's business profile is characterised by its very small size, limited product range, lack of long-term high-tech development achievement and little customer diversification, all of which place a cap on the company's standalone rating in the 'B' category.
Nevertheless, we acknowledge the growth that the group is likely to experience in the coming years stemming from the Kazakhstan government's ambitious plans for the entity as the focal point of the nation's modernisation, industrialisation and export drive. Coupled with the technological know-how the company is acquiring from various joint venture partners, the business profile is likely to see a visible improvement within the rating horizon.
As KE's IDRs and Outlook are driven by those of the Republic of Kazakhstan, any change to the sovereign could prompt a review of the company's IDRs, National Ratings and Outlook.
Any strengthening of this support, such as a provision of written guarantees of KE's debt from the Kazakhstan Ministry of Finance, would be likely to lead to closer rating linkage.
A weakening of support, such as a reduction in the state's shareholding in KE, a waning commitment to and support for the company's programmes, or a change in the treatment by the state that KE receives relative to other state-owned companies, could lead to a widening of the rating gap between Kazakhstan and KE.