Kazakh Rolling-Stock Lessor KZDT Rated "BB+"; National Scale "kzAA"-; Outlook Stable - Standard & Poor's

/Standard & Poor's, Moscow, 14.07.06/ - Standard & Poor's Ratings Services said today it assigned its "BB+" long-term corporate credit rating, and its "kzAA-" Kazakhstan national scale rating, to Kazakhstan-based railfreight rolling-stock lessor JSC Kazzheldortrans (KZDT), a 100% subsidiary of the Kazakhstan national railway group, Kazakhstan Temir Zholy (KTZ; BB+/Stable/--). The outlook is stable. "The ratings on KZDT reflect the consolidated credit quality of KTZ," said Standard & Poor's credit analyst Eugene Korovin. "As a core subsidiary of KTZ, the former is closely integrated with the latter's freight operations, and receives the bulk of its revenues from KTZ." Further economic links between the two entities include: a cross-guarantee of most of the group"s debt by KTZ and KZDT, cross-default provisions on most of group debt for debt exceeding $25 million at KZDT, and the track record of parental support from KTZ to other group entities, as well as KTZ's commitment to provide extraordinary support for KZDT's debt. KZDT benefits from a significant share of the rolling-stock leasing market in Kazakhstan. The regulatory regime, however, although relatively supportive, lacks transparency and does not ensure full cost recovery for new rolling- stock purchases. KZDT's wagon fleet is aging and requires heavy medium-term investment. Although we expect capital repair and replacement to be financed internally, fleet additions could require additional borrowing. KZDT's financial risk is linked to that of the group. We expect KTZ's financial profile to weaken over the medium term, as planned investment will likely require additional borrowing. KZDT's external funding needs are covered by intragroup lending. The company also guarantees all new major group borrowings that are guaranteed by KTZ and other large group subsidiaries. Standard & Poor's expects that KZDT will remain a subsidiary of KTZ, and continue to be closely integrated into group operations. Should the ratings on KTZ change, the ratings on KZDT would most likely be adjusted in line with the parent. "A material change in the parent-subsidiary relationship could challenge the current, consolidated group approach, and result in a heavier dependence by KZDT on its stand-alone credit quality," added Mr. Korovin. [2006-07-17]