Fitch: Limited Impact on Kazakh Oil and Gas Companies from Initial Currency Devaluation

/Fitch Ratings, London-Moscow, February 6, 09/ - Fitch Fitch Ratings has said today that the recent devaluation of Kazakh tenge (KZT) is likely to have a limited impact on the credit metrics of the Kazakh oil and gas companies. However, significant pressure on the local currency could result in a more pronounced credit impact for some entities in the sector. "While the debt portfolios of the Kazakh oil and gas companies rated by Fitch are primarily USD-denominated, their revenue stream is generated mostly in foreign currency whereas their cost structure is skewed towards the national currency. This means they are less vulnerable to exchange rate shocks," says Angelina Valavina, Director in Fitch's Energy, Utilities & Regulation team. Over 90% of Kazakh oil and gas companies' debt is denominated in foreign currency, mostly USD. At the same time, being export-oriented, these companies generate a large portion of their revenue in foreign currency. KazMunaiGaz National Company (NC KMG; 'BBB-' (BBB minus)/Negative) has 48% of its revenue in foreign currency while Tristan Oil Ltd (Tristan; B+'/Negative)) generates about 80%-85% of its revenue in foreign currency. JSC Intergas Central Asia (ICA; 'BB+'/Stable) generates revenue primarily in foreign currency (over 85%) as it focuses on gas transit, the tariffs for which are set in USD. About 10%-40% of their costs are exposed to exchange rate fluctuations. However, if the local currency remains under pressure and KZT devaluation continues in excess of 45%-50% (starting from USD1/KZT120), other things being equal, its negative credit impact will become more pronounced for some companies in the Kazakh oil and gas sector, such as NC KMG and KazTransGas (KTG; 'BB'/Stable) whose revenue (about 50%) is still exposed to the local currency fluctuations, and JSC KazTransOil (KTO; BBB-' (BBB minus)/Negative), an oil pipeline operator, whose tariffs are set in KZT. The negative pressure of the continuous currency devaluation on corporate financial profiles can also be exacerbated by less favourable oil and gas industry fundamentals. Furthermore, severe KZT devaluation will put further pressure on the banking system in Kazakhstan, in turn affecting the business environment in the country. Kazakh tenge was devalued by 18% to USD1/KZT143.98 on 5 February from USD1/KZT121.87 on 3 February. Contact: Angelina Valavina, London, Tel: +44 207 682 7383; Andrew Steel, +44 207 682 7486. Media contact: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com; Alla Izmailova, Moscow, Tel: +7 495 956 9903, Email: alla.izmailova@fitchratings.com. [2009-02-09]