Fitch assigns final senior unsecured "BBB-" to international bonds of Kazakhstan Temir Zholy Finance B.V.
09.07.12 10:20
/Fitch Ratings, London-Moscow, July 5, 12, heading by KASE/ - Fitch Ratings
has assigned Kazakhstan Temir Zholy Finance B.V.'s USD800m 6.95% notes
due 10 July 2042 a final foreign currency senior unsecured rating of 'BBB-'. The
notes are guaranteed by Kazakhstan Temir Zholy (KTZ), the national railway
company and its subsidiaries JSC Kaztemirtrans and JSC Locomotiv.
Approximately USD220m of the net proceeds will be used to repay a bridge
facility and the remainder will be used by Kaztemirtrans to acquire rolling
stock.
Fitch rates KTZ Long-term Issuer Default Rating (IDR) and senior unsecured at
BBB-'. The Outlook on the IDR is Positive.
KTZ's ratings reflect its 100% indirect state ownership and strategic importance
to Kazakhstan ('BBB'/Positive/'F3'), as it provides about half of freight and
passenger transportation in the country. Furthermore, KTZ's tariffs are regulated
and its investment plans approved, and directly co-funded, by the state (through
equity injections and loans). The government also provides direct subsidies for
the loss-making passenger business.
Although KTZ benefits from strong links with the state, full and timely financial
support, which would allow rating alignment with the sovereign is not certain
without robust legal ties (for example, explicit guarantees). KTZ's rating is
therefore one notch down from the sovereign. Fitch revised KTZ's Outlook to
Positive from Stable after the upgrade of Kazakhstan's IDR to 'BBB'/Positive from
BBB-'/Positive in November 2011. Fitch considers KTZ's standalone credit profile
commensurate with the low 'BBB' rating category.
JSC National Welfare Fund Samruk-Kazyna (S-K) plans to offer 5%-15% stakes
in a number of Kazakh entities, including KTZ's subsidiaries, to the local public
in a so-called 'People's IPO' over 2012-2015. Fitch believes that following the
proposed IPO, the government will continue to support KTZ at least within the
rating horizon.
Fitch expects profitability and cash flow from operations (CFO) to remain strong
in 2012, but the increase in capex will mean higher gross debt. Fitch expects free
cash flow (FCF, before equity contributions) to remain negative for the
foreseeable future.
KTZ's funds from operations (FFO) adjusted leverage of 1.6x at end-December
2011 was slightly below that of 2010 (1.8x) and returned to its 2009 level. Due to
its substantial capex for 2012-15, Fitch expects KTZ's gross leverage to increase
markedly to around 3x in 2014-15.
An upgrade of Kazakhstan's IDR would probably be replicated for KTZ (with the
current one notch differential), unless its links with the state weaken.
Similarly, a change in Outlook for the sovereign IDR to Stable would be
replicated, unless KTZ's standalone profile significantly strengthens.
KTZ's YE11 cash and deposits stood at KZT181bn which is sufficient to cover
short-term debt maturities of KZT36bn. However, expected negative FCF
continues to add to funding requirements.
Cash and deposits up to one year (partly in US dollars) is mostly held with
domestic banks, including ATF Bank JSC ('BBB'/Negative), Kazkommertsbank
('B'/Stable) and Halyk Bank of Kazakhstan ('BB-'/Stable), whose ratings include
the potential for moderate government assistance, and whose credit profiles
remain challenged.
FX risk remains a concern for KTZ as at end-2011 58% of its debt was
denominated in dollars. Hedging is currently limited to monitoring exchange rates
changes and maintaining a portion of cash in dollars. Interest on KTZ's debt is
mostly fixed (85% of debt) at an average rate of about 6%, reducing its exposure
to interest rate fluctuations.
Contacts:
Primary Analyst, Josef Pospisil, Senior Director +44 20 3530 1287
Secondary Analyst, Oxana Zguralskaya, Associate Director +7 495 956 7099
Committee Chairperson, Raymond Hill, Senior Director +44 20 3530 1079
Media Relations:
Julia Belskaya von Tell, Moscow,
tel. + 7 495 956 9908/9901,
julia.belskayavontell@fitchratings.com
[2012-07-09]