S&P places KazMunayGas and subsidiaries in CreditWatch with negative oulook on liquidity and leverage concerns concernted with weakened bank sector

/Standard & Poor's, Moscow, June 16, 09, heading by KASE/ - Credit ratings of KazMunayGas and its subsidiaries were placed on the CreditWatch list with negative outlook due to risks of liquidity and bigger financial leverage related to a weakened Kazkhstan bank sector - The substantial cash reserves of Kazakh oil and gas holding company JSC NC KazMunayGas (KMG) and its subsidiaries are concentrated within a small number of local banks, the credit quality of which, in our assessment, continues to deteriorate. - In our view, KMG doesn't have full flexibility to manage its cash deposits, witnessed by, for example, the need to attract new financing to fund its acquisition of MMG. - We are placing the ratings of KMG, and its subsidiaries KMG EP, KTO, KTG, and ICA on CreditWatch with negative implications, reflecting our concerns about the potential impact the exposure to the local banking sector will have on the companies' liquidity and leverage. Standard & Poor's Ratings Services took the following specific rating actions: - The 'BBB-' long-term corporate credit and 'kzAA' Kazakhstan national scale ratings on JSC NC KazMunayGas (KMG) were placed on CreditWatch with negative implications; - The 'BB+' long-term corporate credit rating on JSC KazMunaiGas Exploration Production (KMG EP) was placed on CreditWatch with negative implications; - The 'BB+' long-term corporate credit rating on KazTransOil (KTO) was placed on CreditWatch with negative implications; - The 'BB' long-term corporate credit rating on KazTransGas (KTG) was placed on CreditWatch with negative implications; - The 'BB' long-term corporate credit rating on JSC Intergas Central Asia (ICA) was placed on CreditWatch with negative implications. We placed KMG and its subsidiaries on CreditWatch with negative implications because of our concerns about their exposure to Kazakhstan's weak banking sector. The group reports considerable deposits with local banks, notably (B+/Negative/B) and (B/Negative/C). The group companies also have deposits with (D/--/D). In our opinion, the liquidity and asset quality of these banks remain under pressure (see press release "Ratings of Kazkommertsbank and Halyk Bank of Kazakhstan reduced on worse financials indicaors; oulook - "Negative", released June 11, 2009). In our view, the flexibility KMG and its subsidiaries have in managing these deposits may be limited, an example of which is the company's need to attract new financing to fund its recent acquisition of MangistauMunaiGas (not rated), despite reporting significant cash reserves. This causes us to believe that KMG's liquidity is not as strong as we previously assumed. KMG had about $1.4 billion in short-term debt to be refinanced as of Dec. 31, 2008, and a massive investment program to be funded during 2009-2012. That said, we still believe that the Kazakh government has the incentives and ability to support the company if necessary. At the same time, weaker cash flow generation and increasing leverage resulting from lower oil prices constrain KMG's stand-alone credit quality. We intend to review the CreditWatch placement of KMG by June 30, 2009, after we have finalized our assessment of the group's liquidity, near-term operating prospects, and potential government support. Depending on this assessment, we may lower the long-term rating on KMG by one or two notches. The CreditWatch placement KMG's subsidiaries, including KMG EP, KTO, and KTG, reflects our concerns about KMG's ability to support these entities, as well as potentially limited access for KMG EP, KTO, and KTG to cash reserves deposited with the local banks. Standard & Poor's plans to review the CreditWatch placement of KMG EP, KTO, KTG, and ICA by June 30, 2009, in line with our review of KMG. Ratings list To From KazMunayGas Credit rating ВВВ-/Watch Negative/- ВВВ-/Stable/- National rating kzAA/Watch Negative/- kzAA KazMunaiGas Exploration Production Credit rating ВВ+/Watch Negative/- ВВ+/Stable/- KazTransOil Credit rating ВВ+/Watch Negative/- ВВ+/Stable/- KazTransGas Credit rating ВВ/Watch Negative/- ВВ/Stable/- Intergas Cnetral Asia Credit rating ВВ/ Watch Negative/- ВВ/Stable/- NB: The rating list does not incluse all ratings. For further information, please contact: Andrey Nikolaev, Moscow, 7 (495) 783-41-31 Sergei Gorin, Moscow, 7 (495) 783-41-32 Robert Richards, Frankfurt, 49 (69) 33-99-92-00 E-mails of analysts: Andrey_Nikolaev@standardandpoors.com Sergey_Gorin@standardandpoors.com Elad_Jelasko@standardandpoors.com Rob_Richards@standardandpoors.com [2009-06-17]