S&P Affirms Ratings on Kazakh energy holding KazTransGas and Gas Pipeline Operator Intergas Central Asia on 'BB' level; Outlook Still Negative

/Standard & Poor's, Moscow, 20.08.08/ - Standard & Poor's Ratings Services said today that it had affirmed its 'BB' long-term corporate credit ratings on Kazakh energy holding KazTransGas (KTG) and its 100%-owned gas pipeline operator JSC Intergas Central Asia (ICA). The outlook remains negative. The ratings on KTG and on ICA--whose rating we equalize with that on KTG-- incorporate support from KTG's 100% parent, state-owned JSC NC KazMunayGas (KMG, BBB-/Negative/--) and are two notches below those on KMG, using our top-down approach. "The notching reflects KTG's stand-alone weaknesses," said Standard & Poor's credit analyst Eugene Korovin. These include ambitious investments in gas transmission and distribution; a weak financial profile; heavy dependence on Russian energy giant OAO Gazprom (BBB/Stable/--); gas transit volume risk after 2011, when the gas transit contract with Gazprom expires, potential competition from alternative gas export pipelines transporting Central Asian gas; and opaque retail gas tariff regulation in Kazakhstan and Georgia. These weaknesses are mitigated by the favorable location of ICA's transit gas pipelines between Central Asian gas producers and European suppliers, strong gas demand in Europe, a ship-or- pay transit contract with Gazprom until 2011, and KTG's monopoly gas supplier position in the service area. We assess KTG's stand-alone credit quality at 'B'. The negative outlook reflects that on KMG, as well as a potential weakening in KTG's stand-alone credit quality. "The rating could be lowered if the debt financing for KTG's potential gas pipeline investments leads to a more aggressive financial profile, with funds from operations to debt falling below 15% and weakening KTG's stand-alone credit quality," said Mr. Korovin. Should the liquidity position further weaken due to KTG's failure to refinance its significant debt maturities in 2008, or if KTG significantly increases its investment plan for 2008-2009, the rating would come under pressure. Strong parental or government support for financing new projects, through equity increases, debt guarantees, or increased transit tariffs with Gazprom could mitigate the negative impact on KTG's creditworthiness. For more information: Eugene Korovin, Moscow, 7 (495) 783-40-90; eugene_korovin@standardandpoors.com Sergei Gorin, Moscow, 7 (495) 783-41-32; sergei_gorin@standardandpoors.com [2008-08-21]