S&P rates KazTransGas proposed $600 million notes 'BB'

/Standard & Poor's, Moscow, May 03, 07/ - Standard & Poor's Ratings Services said today that it assigned its 'BB' senior unsecured debt rating to the proposed notes to be issued in the amount of up to $600 million by KazTransGas (KTG; BB/Positive/-) group financing vehicle Intergas Finance B.V., and guaranteed by JSC Intergas Central Asia (ICA; BB/Positive/-). "The rating on the proposed notes issue mirrors that on ICA, reflecting its unconditional and irrevocable guarantee," said Standard & Poor's credit analyst Eugene Korovin. The terms of the notes include, among others, negative pledge, restrictions on merger and consolidation, disposal of receivables, put option upon change of control, and violation of concession agreement. There are no financial covenants. We do not expect the bond maturity to exceed the concession agreement expiration date in 2017. This rating is subject to final documentation. The ratings on ICA and its holding company, KTG, are constrained by the group's very aggressive financial profile, ambitious growth strategy in gas transmission and distribution, and the power sector. The financing scheme for growth is unclear, and the group's credit quality also suffers from the unsupportive-albeit gradually improving-electricity and gas tariff-setting regimes in Kazakhstan and Georgia, gas transit volume risk resulting from Turkmenistan's and Uzbekistan's political regimes, and potential competition from alternative gas export pipelines from Central Asia bypassing Kazakh territory, as well as heavy dependence on OAO Gazprom (BBB/Stable/-). These weaknesses are mitigated by KTG's strategic importance to 100%- state-owned oil and gas company, JSC NC KazMunayGas (KMG; BBB- /Stable/-; Kazakhstan national scale 'kzAA') and the government of Republic of Kazakhstan (foreign currency BBB/Stable/A-3; local currency BBB+/Stable/A-2; Kazakhstan national scale 'kzAAA'), which is likely to justify extraordinary support in a stress scenario. KTG also benefits from ICA's profitable gas transit operations, the favorable position of ICA's gas transit pipelines between Central Asian gas producers and European suppliers, and strong European gas demand. "KTG's credit quality depends heavily on the overall credit quality of the KMG group, given KTG's role as champion in the nascent national gas industry and, in the near future, in Kazakhstan's power sector," said Mr. Korovin. Our rating on KTG is based on a top-down approach and is lower than our assessment of KMG's credit quality. We estimate KTG's stand-alone credit quality to be three notches below its current rating. For detailed information: Eugene Korovin, Moscow, 7 (495) 783-40-90 Elena Anankina, Moscow, 7 (495) 783-41-30 Additional Contact: eugene_korovin@standardandpoors.com Elena_Anankina@standardandpoors.com InfrastructureEurope@standardandpoors.com [2007-05-03]