Fitch Affirms KazTransGas at 'BB' and JSC Intergas Central Asia at 'BB+'; Outlooks Stable

/Fitch Ratings,London-Moscow, December 2, 09/ - Fitch Ratings has today affirmed Kazakhstan-based KazTransGas's (KTG) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB' respectively and its Short-term IDR at 'B'. The Outlooks for the Long-term IDRs are Stable. The agency has simultaneously affirmed JSC Intergas Central Asia's (ICA) Long- term foreign and local currency IDRs at 'BB+' respectively, its senior unsecured rating at 'BB+' and its Short-term IDR at 'B'. The Outlooks for the Long-term IDRs are Stable. ICA is a fully-owned subsidiary of KTG. KTG's ratings and the ratings of its 100% subsidiary, ICA, reflect ICA's position as a monopoly operator of the gas pipeline network in Kazakhstan, which remains the only feasible export route for Central Asian gas to Russia and Europe, given Kazakhstan's geographic location and developed transportation network. KTG is ultimately state-owned through KazMunaiGaz National Company (NC KMG, rated BBB-'/Negative). KTG is rated on a standalone basis, in accordance with Fitch's Parent and Subsidiary Rating Linkage methodology, as the legal, operational and strategic ties between the parent (NC KMG) and its subsidiary are considered limited. ICA's rating is one notch above KTG's because ICA is the main operating entity and a profit centre for the group. In addition, ICA (FY08 funds from operations (FFO) adjusted leverage of 2.6x and an EBITDAR margin of 42.9%) has stronger credit metrics than KTG (3x and 27.7% respectively). The entities' ratings and the Stable Outlooks also factor in Fitch's expectations that OAO Gazprom (Gazprom, rated 'BBB'/Negative), the main counterparty of KTG/ICA accounting for about 89% of ICA's FY08 revenue, will honour its ship or pay obligations in 2010 under a Central Asian gas transit contract with ICA if interruptions continue affecting Gazprom's Turkmen gas purchases. The contract makes up the bulk of the group's revenue. The contract expires at end-2010 and Fitch believes that KTG/ICA is likely to renew it on similar-to-current terms (long-term nature, contracted volumes, etc) given the strategic importance of Central Asian gas to Gazprom. If the new contract contains less favourable terms for KTG/ICA, it would in Fitch's view be somewhat mitigated by an expected rise in gas transit volumes in 2011 amid the anticipated economic recovery and the diversification of transportation routes. (The operations of the Kazakhstan-China pipeline will commence in December 2009 with capacity of 5-10bcm, and the capacity expansion to 30-40bcm is expected by 2012.) The ratings consider the improvement of KTG's and ICA's credit metrics in 2008 and H109. The latter was driven by international gas transit tariff increases in 2008 and further rises in 2009; the expansion of KTG in H109 into export of gas, purchased from local hydrocarbons producers, at domestic prices, which generated good margins; and Gazprom's fulfilment of ship or pay obligations in 2009. However, the ratings also reflect the capital intensity of both companies' operations (KTG's capex of KZT218.3bn (USD1.5bn) over 2009-2013), which may require additional external funding and, along with an expected shift to a more aggressive dividend policy, put upward pressure on the leverage level. Fitch forecasts FFO adjusted leverage for KTG and ICA to stay well above 2x in 2009-2010. In addition to the above noted capex, the group plans to embark on large pipeline construction projects, such as the Kazakhstan-China pipeline, the West-South pipeline and the By-Caspian pipeline. Fitch views the first two projects as credit neutral for KTG/ICA as financing is expected to be provided by the Chinese counterparty, whereas the third project may be financed by KTG/ICA with external borrowings. However, Fitch gains comfort from the fact that the group plans to secure long-term transportation contracts with Gazprom before commencing construction of the By-Caspian pipeline and that the company expects this project to be delayed. As a large portion of the group's cash position is deposited with Kazakh banks, which have been affected by the financial crisis, the agency places greater emphasis on gross, rather than net, leverage figures in its analysis. Contacts: Angelina Valavina, London, Tel: +44 (0) 20 7682 7383; Jeffrey Woodruff, +44 (0) 20 7682 7322. Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com; Marina Moshkina, Moscow, Tel: +7 495 956 9901, Email: marina.moshkina@fitchratings.com. [2009-12-03]