S&P Lowered KazTransGas To 'BB-' On Downgrade Of Parent JSC NC KazMunayGas; Affirmed KazTransOil At 'BB+'; Outlooks Now Stable

/Standard & Poor's, Moscow, July 15, 09/ - Standard & Poor's Ratings Services said today that it had lowered its long-term corporate credit rating on Kazakh energy holding KazTransGas and its 100%-owned gas pipeline operator JSC Intergas Central Asia (ICA; the rating on which we equalize with KazTransGas) from 'BB' to 'BB-'. At the same time, we affirmed our long-term corporate credit rating on Kazakh oil pipeline operator KazTransOil at 'BB+'. The outlooks on KazTransGas, ICA, and KazTransOil are stable. The ratings on KazTransGas, ICA, and KazTransOil were removed from CreditWatch, where they had been placed with negative implications on June 16, 2009. Before the CreditWatch placement, both outlooks were stable. "The downgrade of KazTransGas and ICA reflects our expectations that KazTransGas will continue to rely extensively on financial support from KMG," said Standard & Poor's credit analyst Sergei Gorin. At the same time, in our opinion, KMG's ability to provide timely support has deteriorated, as highlighted by our recent rating action. The ratings on both KazTransGas and ICA are two notches below those on KMG, based on our top-down approach. The notching reflects KazTransGas' weaker stand-alone credit profile and the fact that heavy investments are financed with debt at the KazTransGas level with no guarantees or support from KMG. KazTransGas' business risk profile is supported by the stable regulated nature of the gas transportation business and favorable tariff setting. It is constrained by heavy dependence on Russian energy giant OAO Gazprom (BBB/Negative/A-3) and gas transit volume risk after 2011, when the gas transit contract with Gazprom expires; potential competition from alternative gas export pipelines transporting Central Asian gas; and opaque retail gas tariff regulation in Kazakhstan and Georgia. The affirmation of the rating on KazTransOil reflects our assessment of its stand-alone credit profile at 'BB+'. The rating is linked to that of KMG and incorporates expectations of continued support from the parent. We deem KazTransOil to be of high strategic importance to KMG and to the state. "The rating on KazTransOil is currently the same as the local currency long-term rating on KMG, underpinned by its stand-alone credit quality," said Mr. Gorin. KazTransOil's business risk profile is supported by long-term ship-or-pay contracts with oil producers, limited competition from alternative oil export pipelines, and good prospects for oil production and exports in Kazakhstan. KazTransOil also benefits from low transportation costs and a strong market position in Kazakhstan, based on the company's vast pipeline system. Construction risk, KazTransOil's dependence on Russian state-controlled pipeline operator OAO AK Transneft (BBB/Negative/--), a concentrated customer base, and aged operating assets constrain the rating. On March 31, 2009, KazTransGas had debt maturities of $159 million and KazTransOil had debt maturities of $52 million falling due within 12 months. The stable outlook on both companies reflects our expectations that they will continue to benefit from potential extraordinary support from KMG and that their stand-alone credit profiles will remain resilient in the current market environment, given the regulated nature of their businesses. It also reflects the stable outlook on KMG. RELATED RESEARCH "Corporate Ratings Criteria 2008," published on April 15, 2008, on RatingsDirect Primary Credit Analyst: Sergei Gorin, Moscow, 7 495 783 4132; sergei_gorin@standardandpoors.com Secondary Credit Analysts: Andrey Nikolaev, CFA, Moscow, (7) 495-783-4131; andrey_nikolaev@standardandpoors.com Peter Kernan, London, (44) 20-7176-3618; peter_kernan@standardandpoors.com Additional Contact: Infrastructure Finance Ratings Europe; InfrastructureEurope@standardandpoors.com [2009-07-16]