Fitch affirms Kazakhstan Temir Zholy at 'BBB'

/REUTERS, March 21, 06/ - Fitch Ratings has today affirmed Kazakhstan Temir Zholy's ("KTZ"), the national railway company in Kazakhstan, Issuer Default and Foreign Currency Senior Unsecured ratings at 'BBB'. The Outlook is Stable. The ratings of KTZ reflect its links with the state including the strategic nature of Kazakhstan's rail infrastructure to its economy, particularly given the country's terrain and importance of the commodities (oil, coal and ore) transported. The ratings also acknowledge the government's intention to retain the rail infrastructure assets and activities within KTZ during the reform process - a parliament vote is required to change this. In addition, the ratings consider the government's 100% ownership of KTZ and its strong representation on the group's board, its involvement in the group's finances given the state's (the anti-monopoly agency's) role in setting tariffs and past supportive statements from government representatives towards KTZ. Currently, KTZ's core activities span rail infrastructure, locomotive and wagon provider and related services. Over time, in accordance with the government's plans for liberalisation, certain activities will be on-sold to private operators. Already activities such as track repair and provision of tanker cars, and non-core telecommunications and customer clearance have been (or are to be) sold. At the end of the reform process, KTZ is expected to remain the main provider of rail infrastructure and hold a meaningful market share in providing locomotives and wagons for freight activities. KTZ's FY04 and FY05 profitability has reduced as government-approved increased tariffs have been late in their implementation and have not immediately compensated for ongoing increases in staff, materials and fuel costs. Furthermore, government grants for unprofitable passenger services have been delayed and are lower than attributable operating losses. Although freight rail income (the bulk of turnover and profits for the group) is now segmented into rail infrastructure, wagon and locomotive usage, and commercial work services charges, there is still a lack of transparency and consistency in methodology to the anti-monopoly agency's treatment of tariff increases. This lack of endorsement for economic rationale, together with past examples of political interference, is of concern to this rating. KTZ is not aggressively leveraged. Recent short-term bank funding has increased the amount of secured debt (on equipment for refurbishing locomotives and other expenditure), but this was some USD154 million at YE05. Other recent funding has been spent on replacing the largely non- operational wagon fleet, refurbishing locomotives, as well as rail infrastructure. A prospective unsecured bond is expected to refinance short- term funding and provide funds for future capital expenditure requirements. Kazakhstan's rail infrastructure provides a key transport artery from Asia to the West using the Northern Corridor on the Trans Asian Railway and the Central Corridor (the Siberian rail route branching down through Kazakhstan) and accesses infrastructure connecting up to Western Europe and the Baltics. The western-side TRACECA route (the Transport Corridor Europe - Caucasus - Asia, TransCaspian Corridor) links to the Aktau port, Kazakhstan's only gateway to the sea. Contacts: John Hatton, London, Tel: +44 (0) 20 7417 4283; Nikolai Lukashevich, Moscow, +7 495 956 9968. Media Relations: Alex Clelland, London, Tel: +44 20 7862 4084. [2006-03-21]