Fitch Affirms Eastcomtrans at 'B-', Outlook Stable

13.09.11, 14:59
/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 remains Stable. 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. [2011-09-13]