Fitch Affirms Eastcomtrans at 'B-', Outlook Stable
/IRBIS, September 13, 2011/ - Fitch Ratings has affirmed
Kazakhstan-based Eastcomtrans LLP's (ECT) Long-term foreign
and local currency Issuer Default Ratings (IDR) of 'B-', and
National Long-term Rating of 'B+(kaz)'. The Outlook on the ratings
As stated, the ratings reflect ECT's strong and growing position in
the Kazakh rolling stock market, and the fundamental prospects for
the business stemming from increasing domestic oil and gas
production, combined with a shortage of effective export pipeline
capacity. ECT also benefits from a relatively new wagon fleet, its
flexible business model and commensurate credit metrics.
Fitch notes a number of positive developments over the last year.
ECT's fleet expanded to 7,851 wagons from over 3,000 wagons
without significantly increasing the company's leverage (Fitch's
expected funds from operations adjusted leverage in FY11 is 3.7x
compared to a historical three-year average of 3.5x). The newly
acquired wagons were immediately contracted out with existing
and new customers (the latter on a long-term basis).
It was stated that the expansion was funded though long-term
amortising facilities (with a pledge over the wagons) and leasing.
Additionally, ECT refinanced one of its existing loans at a lower
interest rate and for a longer maturity.
It was stated that despite the growth and two new large customers,
ECT's ratings remain constrained by its concentration on a single
large customer Tengizchevroil LLP (TCO Senior Notes, 'BBB-
/Positive), which accounts for more than 80% of its annual
revenues. ECT provides around 30% of TCO's overall wagon
requirement and around 13% of its overall transportation needs.
ECT has been providing wagons to TCO since 2004 on a short-
term contract basis, currently for a period of three years.
Fitch anticipates that TCO will continue to rely on rail transportation
in the next couple of years for a moderate share of its exports. The
long-term requirement will be influenced by the timing of the CPC
export pipeline capacity expansion (unlikely before 2014) and
TCO's own production expansion (possibly around 2015). If TCO
reduces its rail transportation needs, ECT's wagons can be re-
leased to another customer within the CIS region where Fitch
anticipates solid demand for oil tank wagons. However, a lack of
contractual certainty constrains the ratings at the current level.
"ECT's ratings also continue to be constrained by weaknesses
identified within the corporate governance area where the single
owner structure exposes the company to the risk of overreliance
on a single individual and limited equity back up support in case of
negative market shifts", - was stated in the message
It was also stated that extension of the TCO contract, a stronger
equity base and a track-record of contracted growth with
counterparty diversification and without credit metrics deterioration
could lead to a positive rating action. Conversely, failure to renew
the TCO contract or speculative acquisition of new rolling stock
would be negative for the ratings.
Liquidity improved thanks to a more prudent cash management
and new committed facilities. As of June 2011 ECT's cash
balances amounted to USD16m while USD25m was available
under its committed facilities. Short-term debt stood at USD50m
and Fitch-expected pre-capex and pre-dividends cash flow for the
following 12 months was around USD60m.