S&P assigned ratings to upcoming issue of Samruk-Energy (Kazakhstan) bonds

/Standard & Poor's, Moscow, November 28, 12, Standard & Poor's English translation, KASE headline/ - Standard & Poor's Ratings Services has today assigned its 'BB+' issue rating and '4' recovery rating to the proposed notes of Kazakhstan state-owned vertically integrated electricity utility (BB+/Stable/B; Kazakhstan national scale rating 'kzAA-'). The 'BB+' issue rating on the proposed Kazakhstani tenge (KZT) 30 billion (about $200 million) notes is at the same level as the corporate credit rating. The recovery rating of '4' indicates our expectation of average (30%-50%) recovery prospects in the event of a payment default. Our opinion of the recovery prospects for the notes is supported by our view that, in the event of default, the likely recovery for the noteholders would hinge on the ability and willingness of the Kazakh government to negotiate with creditors, rather than formal restructuring, given the implied sovereign support and the strategic nature of Samruk-Energy's assets. However, the recovery prospects are constrained by the unsecured nature of the notes and our view of Kazakhstan as an unfavorable insolvency regime for creditors. The notes will be unsecured obligations of Samruk-Energy and will not benefit from guarantees. The group also has a number of bank loans, some of which are secured by property assets or benefit from subsidiary guarantees. For the purpose of our analysis, we consider the secured facilities and the facilities guaranteed by operating subsidiaries to rank ahead of the notes at the hypothetical point of default. A major part of the debt is currently unsecured, and we have assumed that the debt structure at the hypothetical point of default would be substantially similar to the current structure, with the notes ranking equally with the various other unsecured, unguaranteed debt instruments. The documentation for the notes includes a number of restrictions, which we view as relatively favorable for creditors, including restrictions on additional indebtedness, dividend payment, asset disposals, mergers, acquisitions, and transactions with affiliates, and a negative pledge provision. We understand that some of the debt facilities of other group entities benefit from maintenance financial covenants. Our simulated default scenario contemplates a default by 2017, driven by a combination of cost overruns on investments, higher-than-anticipated maintenance costs, and rising interest rates on variable-rate debt. Given implied sovereign support and the strategic nature of Samruk-Energy's assets, we believe it unlikely that the group's assets would be sold to repay creditors. Therefore, in large part, we believe noteholder recoveries are likely to depend on the ability and willingness of the Kazakh government to reach a negotiated settlement. We estimate that the group's intrinsic enterprise value at default would need to exceed KZT74 billion at the hypothetical point of default, based on our waterfall assumptions, to cover more than 30% of the notes' principal and prepetition interests, consistent with a recovery rating of '4'. We assume that about KZT35 billion of prior-ranking claims, excluding enforcement costs, would need to be covered before payment of about KZT110 billion of unsecured debt claims that we assume would be outstanding at default. This amount comprises the proposed KZT30 billion notes, as well as various unsecured debt instruments. Primary Credit Analist: Sergei Gorin, Moscow, (7) 495-783-4132; sergei_gorin@standardandpoors.com Recovery Analyst: Arnaud Fraslin, Paris, (33) 1-4420-6734; arnaud_fraslin@standardandpoors.com [2012-11-29]