S&P Revised Kazakhstan Electricity Grid Operating Co. (JSC) Outlook To Stable, Affirmed At 'BB+'

/Standard & Poor's, Moscow, May 13, 09/ - Standard & Poor's Ratings Services said today that it had revised its outlook on Kazakhstan Electricity Grid Operating Co. (JSC) (KEGOC), state-owned transmission grid operator, to stable from negative. At the same time the 'BB+' long-term corporate credit rating was affirmed. The outlook revision follows the revision of the outlook on the Republic of Kazakhstan (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3; Kazakhstan national scale 'kzAAA') to stable from negative on May 8, 2009. "We apply a top-down rating approach to KEGOC, notching down two notches below the local currency rating on the sovereign," said Standard & Poor's credit analyst Sergei Gorin. "This reflects KEGOC's strategically important status to the Kazakh government as a provider of core infrastructure services." KEGOC's stand-alone credit quality is constrained by the company's aggressive financial policy, large grid investment program and associated construction risk, high foreign currency and floating interest risk exposure, and Kazakhstan's relatively weak power sector characteristics. Kazakhstan's relatively low wealth, limited customer diversification, and historically delayed payments impair KEGOC's market position. These risks are mitigated by state support to KEGOC in the form of guarantees on a significant part of its debt, supportive tariffs, and potential extraordinary support. KEGOC also benefits from its monopoly position in a stable and low-operating-risk electricity transmission business. On March 31, 2009, according to the company's management, available liquidity reserves of Kazakhstan tenge (KZT) 14.6 billion ($97 million) covered KZT3.6 billion of debt maturing over the next 12 months. The stable outlook reflects that on the sovereign. The outlook also reflects our expectation that KEGOC's close integration with the government as its 100% ultimate owner will persist, and that KEGOC will continue to benefit from various forms of state support, such as debt guarantees or equity increases. "A change in the sovereign credit rating would not automatically result in a change in the rating on KEGOC; it would be subject to a separate review," said Mr. Gorin. Standard & Poor's will focus on the degree of government support KEGOC receives to offset the capital-expenditure program and debt buildup, in particular any government guarantees on new debt, higher tariffs, or equity injections. Were the government to deviate from its supportive policy or initiate a privatization process, KEGOC's credit risk would become more dependent on its weaker stand-alone credit profile, and this would jeopardize the rating or the outlook. Primary Credit Analyst: Sergei Gorin, Moscow, 7 495 783 4132; sergei_gorin@standardandpoors.com Secondary Credit Analyst: Peter Kernan, London, (44) 20-7176-3618; peter_kernan@standardandpoors.com Additional Contact: Infrastructure Finance Ratings Europe; InfrastructureEurope@standardandpoors.com [2009-05-13]