Kazakhstan Electricity Grid Operating Co. "BB+" Rating Affirmed; Outlook Remains Stable

/Standard & Poor's, Moscow, November 3, 06/ - Standard & Poor's Ratings Services said today it affirmed its 'BB+' long-term corporate credit rating on Kazakhstan Electricity Grid Operating Co. (JSC) (KEGOC). The outlook remains stable. "The rating on KEGOC continues to reflect its aggressive financial policy, as a result of an ambitious grid renovation and development program," said Standard & Poor's credit analyst Eugene Korovin. The rating is further constrained by the company's high exposure to foreign currency and floating interest risk; the operational challenges arising from the implementation of its North-South construction project; and the relatively weak characteristics of the national power sector. These risks are offset by KEGOC's strategic importance to the Republic of Kazakhstan (foreign currency BBB/Stable/A-3; local currency BBB+/Stable/A-2): The company benefits from strong explicit support and relatively supportive tariff regulation. The rating is further supported by KEGOC's continued monopoly position in a relatively stable electricity transmission business, and the good medium-term prospects for national power consumption growth. We expect the company's increasing financial risk in the medium term will offset the ongoing implicit and explicit support from the Kazakh government. A change in the sovereign credit rating would not automatically result in a change in the rating on KEGOC--if this occurred, the company would be subject to a separate review. Standard & Poor's would focus on the degree of government support KEGOC receives to offset its capital expenditure program and debt build-up. We would particularly focus on any government guarantees on new debt, the government's record in tariff setting, and possible equity injections. Were the government to alter its supportive policy or initiate a privatization process, KEGOC's credit risk would likely weaken due to the influence of its weaker stand-alone credit profile, and this might put downward pressure on the rating or the outlook. [2006-11-03]