Rail Co. Kazakhstan Temir Zholy 'BB+' rating affirmed; outlook stable - Standard & Poor's

/Standard & Poor's, London, May 17, 05/ - Standard & Poor's Ratings Services said it affirmed its 'BB+' corporate credit rating on railroad group Kazakhstan Temir Zholy (KTZ). The outlook is stable. The rating reflects KTZ's high investment needs, which require additional borrowing and will result in a weakening financial profile in the medium term. The increasing dependence of KTZ's cash flows on unstable oil traffic and continued exposure to regulatory risk are other negative factors. These risks are offset at this rating level by: KTZ's positions as monopoly railroad infrastructure operator and dominant freight carrier; a strong intermodal competitive position; good medium-term rail traffic growth prospects; and KTZ's strategic importance to and support from government of Kazakhstan (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3). "We expect growing demand for rail transport, improving tariff regulation, and gradual transfer of the passenger transport subsidization burden to the government to mitigate KTZ's financial risk," said Standard & Poor's credit analyst Eugene Korovin. "This risk is growing owing to higher leverage and the heavier dependence of KTZ's cash flows on volatile oil traffic." Adoption of a prudent and explicit financial policy could be an additional credit risk mitigant. Alternatively, a more aggressive than anticipated financial policy could put negative pressure on the rating. A change of the ratings on the Republic of Kazakhstan is not expected automatically to result in a change in the rating on KTZ. Eugene Korovin, Moscow (7) 095-783-4090; eugene_korovin@standardandpoors.com Paul Lund, London (44) 20-7176-3715; paul_lund@standardandpoors.com InfrastructureEurope@standardandpoors.com [2005-05-18]